Demat

What is Dematerialisation?
Dematerialisation, called 'demat’ in short, is the process by which an investor can get his physical share certificates converted into electronic form maintained in an account with a depository participant. You can dematerialise only those share certificates that are already registered in your name and belong to the list of securities admitted for dematerialisation at the depositories.

Who is a depository ?
The organization responsible for maintaining an investor's securities in the electronic form is called a depository. In other words, a depository can therefore be conceived of as a bank for securities. In India there are two such organizations viz. National Securities Depository Limited and Central Depository Securities Ltd. The depository concept is similar to the banking system with the exception that banks handle funds whereas a depository handles securities of the investors. An investor wishing to utilize the services offered by a depository has to open an account with the depository through a depository participant.

Who is a Depository Participant ?
The market intermediary through whom depository services can be availed of by investors is called a Depository Participant (DP). As per SEBI regulations, a DP could be an organization involved in the business of providing financial services like banks, brokers, custodians and financial institutions. This system of using the prevailing distribution channel (mainly constituting DPs) helps the depository to reach a wide cross-section of investors spread across a large geographical area at a minimum cost.

What are the advantages of depository services ?
Trading in the demat segment completely eliminates the risk of bad deliveries. In the case of transfer of electronic shares, you save 0.5% in stamp duty. It also avoids the cost of courier and notarization simultaneously obviating the need for further follow-up with your broker for shares returned for company objection.

There is no loss of certificates in transit and it saves substantial expenses involved in obtaining duplicate certificates, as and when the original share certificates become mutilated or are misplaced. It increases liquidity of securities due to immediate transfer and reduces registration in brokerage for trading in dematerialised shares. Also, the investor receives bonuses and rights into the depository account as direct credit, thus eliminating the risk of loss in transit.

The procedure for opening a demat account
Opening a depository account is as simple as opening a bank account. You can open a depository account with any DP convenient to you by following these steps:

  • Fill up an account opening form, which is available with the DP.
  • Sign the DP-client agreement, which defines the rights and duties of the DP and the person wishing to open the account.(Please read the terms & conditions carefully)
  • Receive your client account number (client ID). This client ID along with your DP ID gives you a unique identification in the depository system. There is no restriction on the number of depository accounts one can open. However, if your current physical shares are in joint names, be sure to open the account in the same order of names before you submit your share certificates for demat

The procedure for dematerialisation of your share certificates

  • Fill up a dematerialisation request form, which is available with your DP.
  • Submit your share certificates along with the form; (write "surrendered for demat" on the face of the certificate before submitting it for demat).
  • Receive credit for the dematerialised shares into your account within 15 days.

In the case of purchasing dematerialised shares directly from the broker, instruct your broker to purchase the dematerialised shares from the stock exchanges linked to the depositories. Once the order is executed, you have to instruct your DP to receive the securities from your broker's clearing account. You have to ensure that your broker also gives a matching instruction to his DP to transfer the shares purchased on your behalf into your depository account. You should also ensure that your broker transfers the shares purchased from his clearing account to your depository account, before the book closure/record date to avail of the benefits of corporate action. More>>