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The stock market has had a long history since the twelfth century. But in India, the history of the share market, which resulted in today’s market, began in 1875. The name of the first share trading association in India was the Native Share and Stock Brokers Association, which later came to be known as the Bombay Stock Exchange (BSE).
Previously, holding financial securities in physical certificates was quite inconvenient, and people would get scammed or even lose their financial certificates. So, holding the share certificates in physical form could lead to lots of trouble, but after the Demat account’s introduction, things improved.
The process of dematerialisation is a game changer for traders in the stock market, now converting the physical certificate into an electronic format. The forgeries of shares, theft, and delays in the delivery of securities have been eliminated. Traders nowadays trade from anywhere through the Internet and stock broker applications. Dematerialisation means converting the physical certificates into an electronic format and holding them in your Demat account.
In 1996, the revolutionised Indian stock markets as the board of exchange introduced the concept of the Demat account. The idea behind the use of a Demat account is to reduce the headache of several investors to stay present in the stock market. Through the Demat account, the Securities and Exchange Board of India (SEBI) also introduced online trading, where traders can buy and sell securities using the software.
But there was one more issue, and the Demat account took care of that as well. The issue was regarding the shares that were bought before the introduction of the Demat account. To solve this, the investors can easily convert their physical certificates by paying a small fee to the brokerage firms. The process of dematerialisation is vital to ensure the proper trade from the physical certificate to convert them and add them to your Demat account.
Table of Contents
What is Dematerialisation in Stock Trading?
In the stock market, time plays an important role. The time required to trade with the physical certificate is quite high. Therefore, the trader needs to adopt a method where they can trade instantly. So, for the trader, converting their old physical certificates into electronic ones is essential, and this process is called dematerialisation. A depository helps to store the holdings and securities of a shareholder in electronic form. These securities can be bonds, government securities, and mutual funds, which are held by the registered depository participant (DP). A DP is an intermediary or brokerage firm between an investor and the stock exchange, according to the act set in 1996.
In India, two depository systems are followed: the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). Additionally, SLB, or Stock Lending and Borrowing, is a mechanism offered by these depositories that allows investors to lend their securities to others in exchange for a fee, providing opportunities for additional income and liquidity management in their investment portfolios.
Process of Dematerialisation
You first need to open a Demat account with a reliable broker such as Share India.
- Choose a depository participant. Many banks and financial firms provide the service of Demat accounts.
- Fill out an account opening form where you will have to add your mobile number and email ID.
- After entering the account details, add the basic information and submit the documents related to your age proof, address proof, and income proof.
- All copies of the documents must be submitted in digital format.
- E-sign the terms and conditions document.
- Finally, add the details about the nominee that you would like to add to your Demat account.
After successfully executing such steps, you need to add the Demat account number and the Demat ID, once all the documents are verified and your Demat account number and ID are shared on your registered mobile number and email ID. You can use this information to access your Demat account.
Explain Rematerialisation
The process of rematerialisation converts the electronic certificates into physical ones. You can opt for the rematerialisation of your shares anytime. This process will take around 30 days. However, after the rematerialisation of the shares, you cannot trade with them until they are converted to electronic shares again.
This is the process of rematerialisation:
- Fill out a rematerialisation form from your stockbroker.
- After receiving the form, you need to verify the details and shares and then slip with a stamp and sign.
- The post-verification of details and the rematerialisation request will be sent to the brokerage firm.
- After this, the depository will forward the requested documents to the company’s registrar.
- The registrar will then verify all the details. In case of any discrepancies, the registrar will demand rectification and forward the request to the DP.
- Then, the depository will print the certificates and send the physical certificates to the client post-conversion. The shares will be delivered to the investor, and the depository will inform the DP and update the Demat account.
What are the benefits of dematerialisation?
The dematerialisation of certificates is the best method to hold and trade your financial certificates. By having a digital certificate, you can achieve the following benefits:
Fast Transfer
Through online trading, the speed and time required to buy and sell an asset are very fast. So you can place an order and receive your request instantly.
Safe Trading
Another benefit is safe trading, where you get several layers of security. For example, you can set a Transaction Personal Identification Number (TPIN), another secure layer, when selling your financial holdings.
More Control
Through an online Demat account, you have more control over your trading. You can track your financial holdings live and check the debit/credit records of your securities from the Demat account. You can also view the profit/loss ratio on your holdings.
Multipurpose
In the Demat account, you can store multiple financial assets. Also, you can easily hold debt instruments, mutual funds, Exchange Traded Funds (ETFs), etc. You can use a single account for multiple types of assets available in the stock market.
Conclusion
As we understand the definition of dematerialisation, we understand the importance of a Demat account and its features. So, now that you know all about securities and new-age trading, you can open your Demat and trading account with a trusted and advanced broker like Share India. With Share India, you can get regular updates and insights on stock trading.