What is Dematerialization of securities?

Dematerialization offers convenience, security, and flexibility. Having share certificates in physical form was risky. There were risks such as certificate forgeries and loss of valuable share certificates. This could also lead to delays in certificate transfer. These problems are eliminated by dematerialization, which allows customers to convert physical certificates into electronic formats.

Everything you need to know about desmaterialization

  • Securities Dematerialization
  • Dematerialization.
  • Why is dematerialization necessary?
  • Dematerialization benefits.

What is dematerialization of securities?

Dematerialization is the process by which physical securities, such as share certificates, are converted into electronic format. The documents can then be stored in a Demat account. Click here to create a free Demat account.

The depository holds the securities of shareholders in electronic form. These securities can be in the form bonds, government securities or mutual fund units. They are held by a registered Depository Participant. A DP is an agent for the depository that provides depository services to investors and traders.

There are currently two SEBI-registered depositories that are licensed to work in India.

NSDL (National Securities Depository Ltd.
CDSL (Central Depository Services (India), Ltd.


  • Dematerialization begins with opening a Demat bank account. You will need to select a Depository Participant (DP), who offers Demat services, in order to open a Demat account.
    • The Dematerialization Request Formula (DRF) is required to convert physical shares into electronic/Demat forms. It can be found with the Depository Participant. The phrase 'Surrendered to Dematerialization' must be included on each share certificate.
    • This request must be processed by the DP along with the shares certificates to the company.
    • After approval of the request, the share certificates in physical form will be destroyed. A confirmation of dematerialization will then be sent to the depository
    • Once this is done, the depository will confirm that shares have been dematerialized to the DP. Once this has been confirmed, the credit for the holding of shares will be reflected electronically in the investor's account.
    • The entire process takes between 15 and 30 days after the dematerialization request is submitted.
    • Dematerialization can only be achieved with a Demat Account. To understand dematerialization, it is important to learn how to open one.

Purchase dematerialized securities

Step 1 - Choose a broker to facilitate the purchase of securities

Step 2 - Make a payment at the broker, who will arrange for payment to the clearing company on the pay in day

Step 3 The securities are credited on the pay-out date to the clearing account of the broker.

Step 4 The broker will instruct its Depository Participant(DP) to debit your clearing account and credit it to your account.

Step 5 The depository will confirm that shares have been dematerialized to the DP. Once this has been completed, the credit for the holding of shares will be reflected in the investor's electronic account.

Step 6 You will be receiving shares to your account. You will need to provide 'Receipt Instructions to the DP in order to receive credit , If you didn't give standing instructions at the time of opening your account

Selling dematerialized securities

Step 1 - Choose a broker to sell securities on a stock exchange that is linked to the NSDL.

Step 2 The Depository Participant must be instructed to debit your bank account with the amount of securities sold, and credit the clearing account of the broker.

Step 3 - You must send the delivery instructions to your Depository Participant(DP) using the delivery instructions slips

Step 4 - Once your request has been approved, all share certificates in physical form will be destroyed. A confirmation of dematerialization will then be sent to you.

Step 5 The broker will instruct its DP to deliver the clearing corporation's documents to it before the
pay-in day

Step 6 You will be paid by the broker for the sale or securities you have sold.

What was the purpose of dematerialization?

  1. In the past, mistakes and unanticipated mishaps were often caused by the handling of paperwork in relation to shares in physical format.
  2. It was difficult to track records and share documents relating to transfers and upkeep transactions.
  3. The increasing number of share papers meant that the authorities responsible for updating them could not keep pace with it. This could lead to a collapse in the financial base of Indian share markets and related businesses.

Dematerialization has many benefits

Dematerialization of securities has many benefits. These are just a few:

  • You can manage your transactions and shares from any location.
    • Your electronic securities are exempt from stamp duty
    • No holding charges are levied
    • There are no risks associated with physical security such as theft, loss or forgery.
    • You can purchase securities in odd-numbered lots or one single security
    • The time it takes to complete a form is reduced by the absence of paperwork
      transaction gets reduced

How to open a Demat account?

Documents required for opening Demat account

Features and Benefits of Demat Account

How to use a Demat account?

Concepts & procedures for demat accounts

Benefits and Advantages of Dematerialisation of shares

Check these 5 things before you open a Demat Account

Basics of Demat account

Types of Trading Accounts and Demat accounts

Low brokerage fees and low-cost discount brokerage

what is bonus shares?

Collateral margins for shares in Demat account

Difference between Dematerialisation and Rematerialisation

How to find your Demat account number and check DP ID

Transferring shares from one Demat account into another

How to Link Adhaar and a Demat account?

How do I convert physical shares into a Demat account?

How to open Demat account for minors?

How to select the best Demat account?

Charges for Demat accounts