What is Dematerialization| Meaning, Process, and Advantages

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Do you know? There used to be times when investors were buried under piles of paper, scrambling through stacks of share certificates to trade. The fear of losing them to a coffee spill, or worse, theft, was real. With digitalisation taking over, the idea of transferring the share certificates into electronic form came up. Bidding goodbye to the fear of losing share certificates, bonds, etc. Then came the dematerialisation process. It turned this paper chaos into a few clicks on a screen. Now, what is the dematerialisation of shares?

Let us understand it today!

What is Dematerialisation?

Dematerialisation of shares is the process that converts physical shares and securities into digital or electronic forms. The main goal is to simplify buying, selling, transferring, and holding shares while making it cost-effective and secure.

The Securities and Exchange Board of India (SEBI) now requires companies to issue shares only in electronic form.

In India, there are two main depositories that store your electronic holdings:

Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL).

They are registered with the Securities and Exchange Board Of India (SEBI). So, when you dematerialise your shares, these depositaries store them securely.

This modern way of handling securities is efficient and helps protect your investments.

Is Dematerialisation of Securities Compulsory?

According to the Depositories Act of 1996, investors have the option to hold securities either in physical or electronic form. They can choose to hold part of their holdings in physical form and part in dematerialised (demat) form. However, SEBI has mandated that settlement of market trades in listed securities must take place only in the demat mode.

As per SEBI,

Dematerialisation is when physical certificates held by an investor get changed into an equivalent number of electronic securities. Thereafter, they are credited into the investor’s account with their Depository Participant (DP).

Dematerialisation Process: How Can One Convert Physical Holding into Electronic Holding

The dematerialisation process starts with opening a demat account with a registered depository participant (DP).

Shoonya is a registered DP with CDSL and offers a zero brokerage demat account. It also offers lifetime brokerage-free trading on all segments, including stocks, bonds, mutual funds, currencies, ETFs, commodities, and more!

To convert physical holdings into electronic form (dematerialise securities), you must follow:

  1. Fill out a Demat Request Form (DRF), available from your DP.
  2. Submit the DRF along with the physical certificates you want to dematerialise.
  3. Fill out a separate DRF for each ISIN (International Securities Identification Number) if you have multiple types of securities.
  4. Surrender the certificates to your DP.
  5. After verification, your DP notifies the Depository about your dematerialisation of share requests.
  6. The DP sends the physical certificates to the registrar of the Issuer Company.
  7. The registrar confirms the dematerialisation request from the depository.
  8. After the dematerialisation of share certificates, the registrar updates the accounts. Then, they inform the depository about the completion of the dematerialization process.
  9. The depository updates its accounts and informs the DP.
  10. Finally, your DP updates your demat account with the electronic securities.

This process transforms your physical securities into electronic form, making them easier to manage and trade securely.

What are the Advantages of Dematerialisation

Dematerialization of shares brings many benefits to traders, especially by saving time. Back in the day, stock exchange transactions were quite different. Traders used to gather at the exchange and shout out their buy and sell prices. Everything was recorded on paper receipts. Then, after the market closed, they had a lot of paperwork to do to make sure all the transactions were properly recorded.

  • Convenience

Dematerialisation eliminates the need for physical handling and storage of share certificates. Thus making it more convenient for investors to manage their investments.

  • Safety of Share Documents

Electronic shares are less susceptible to damage, loss, or theft compared to physical certificates.

  • Cost-Efficiency

Dematerialisation reduces paperwork, postage, and administrative costs associated with physical securities.

  • Faster Transactions

Electronic shares enable faster settlement and transfer of ownership. It helps in reducing the time required for trading. Also, dematerialisation improves liquidity in the market.

  • Easy Access

Investors can access their demat accounts online. This allows you to track investments and view transaction history easily.

  • Expanded Scope

Dematerialisation encompasses not only stocks but also bonds, mutual funds, and government securities.

  • Analogous to Bank Accounts

DEMAT accounts function similarly to bank accounts, facilitating electronic management of assets without the need for physical certificates or transactions.

Selling Dematerialized Securities

When you sell dematerialised securities, the process is similar to selling physical securities. However, the only difference is in how the securities are delivered and received electronically.

For Purchase

  • Your broker receives the securities in their account on a payout day.
  • The broker instructs their Depository Participant (DP) to debit their account and credit your account (Beneficial Owner – BO).
  • You (the BO) provide a ‘Receipt Instruction’ to your DP to receive the credit by filling out the appropriate form.
    Alternatively, you can set up standing instructions for future credits to your account. This eliminates the need to give a Receipt Instruction every time.

For Sale

  • You (the BO) provide a delivery instruction through a Delivery Instruction Slip (DIS) to your DP to debit your account.
  • Ensure that this instruction reaches the DP’s office at least 24 hours before the pay-in deadline. If it doesn’t, the DP may accept the instruction but at your (the BO’s) risk.

This process allows you to sell your dematerialised securities electronically.

Timing and proper instruction delivery are important to ensure smooth transactions.


The dematerialisation of shares marks a significant shift from physical certificates to electronic securities. The main goal is to enhance convenience, safety, and efficiency in trading and investment management. This not only simplifies the handling of securities but also aligns with modern digital practices.

FAQs| What is Dematerialisation

What is dematerialisation?

Dematerialisation is the process of converting physical share certificates into electronic records, making it easier to manage and trade securities.

Do dematerialised shares have distinctive numbers?

No, dematerialised shares do not have distinctive numbers. They are fungible, meaning each unit is identical and interchangeable with others.

What is the Dematerialisation of physical shares?

Dematerialisation of physical shares refers to the transformation of paper-based share certificates into electronic form, which are then held in a Demat account for ease of trading.

Source :- sebi.gov.in, cdslindia.com


Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.