The Indian Stock markets have evolved to offer better features, customer experience and ease of use and trading to the new age of tech-savvy investors. Earlier there used to be an open outcry system when investors were required to be physically present to trade at the stock exchange. The buying and selling were done through physical share certificates which were marked with the ownership. With the introduction of online trading and technology-backed trading platforms, this process eventually became obsolete.
In the current scenario as per the regulations laid out by the Securities and Exchange Board of India (SEBI), you can now only trade shares electronically which are in Dematerialised Form (DEMAT).
What is a Demat account?
In 1996, SEBI introduced Demat accounts in India and thus revolutionizing the whole investing process. Demat accounts became one of the most important factors of the whole process. Demat refers to the dematerialisation process, it is a process by which the physical securities get converted into electronic format. Thus the investor or trader can hold, transfer or transact financial securities without the hassle of handling physical securities. This eventually made trading a much safer, quicker and more efficient process.
What is the Dematerialisation Process?
As we know before the onset of Dematerialisation and Demat Accounts, people held shares in Physical Form only, but SEBI mandated that the physical certificates to be converted into Virtual shares through Dematerialisation. This process has four parties to it.
- Beneficial Owner
- Depository participant
A depository participant is an agent of the depository through which you operate your Demat account. The DP is responsible for providing the interface required between you and the Depository. Depository services can be taken from any DP same way as you can take banking services through any branch of the bank.
Any financial services provider, such as Financial Institutions or banks, even state finance corporations and stock brokers can register and function as a DP.
The shares or debentures which you may have in a physical form can be electronically held or can be dematerialised in a depository. A depository holds all of the securities such as shares, bonds, debentures, government securities, units of mutual funds etc) of the investors in an electronic form upon request by the investors. National Securities Depository Limited (NSDL) and Central Depository Limited(CDSL) are two depository institutions that are licensed and registered with SEBI to operate in India.
Dematerialisation is like keeping your physical cash in a bank. In Dematerialisation, your physical shares are replaced by electronic book entries; purchases are reflected as credits in your Demat account and sales are reflected as debits
Rules to Follow Regarding the Dematerialisation Process!
- In this process, a company will have to revise the article of the association through a general meeting, to allow the shares to be issued in electronic form.
- Private companies will then have to register with both NSDL and CDSL. The depositories have their own set of rules for registration and the issuer of shares will have to comply with them.
- After the registration, the depositories will provide a unique ISIN for each share. It is a 12-digit code which is used to identify the securities such as shares and bonds etc.
- The Companies get access to a depository service through an intermediary. The issuer will have to arrange for Demat connectivity from the depositories if it wants to transfer the shares.
- Since the shares are electronically stored, there happens to be an annual maintenance charge that the investors have to pay which ranges anywhere from Rs 500 to Rs 1,000
How to Dematerialise your Physical Shares Certificates?
You are at the risk of losing your ownership if you do not dematerialise your physical shares as it is now mandatory. If you’re holding a physical share certificate of any company you need to convert them into an electronic form before trading them i.e. buying and selling them.
The process to do so is quite simple as well.
- Opening a Demat account with Rurash
Step 1: Visit the website of Rurash
Step 2: Fill out the form to start the process
Step 3: upload the required documents for the KYC process
Step 4: Sign the agreement with the Dp along with the required charges. The agreement would contain the responsibilities of both you ( the account holder ) and Rurash ( the DP). Thus it is important that you read them carefully before signing on them.
Step 5: Once all of the required documents are submitted, the application will be processed by DP.
Step 6: Once your Demat and trading account application is approved, you will receive a unique User ID and password to access the trading account along with your Demat Number
- Raise a request for Dematerialisation of Physical Shares.
Once you have opened a Demat account, you will have to put in a request to convert your physical certificate of the share into the dematerialised format. Following are the steps to do that
- Contact your DP for a Dematerialisation Form or DRF
- Fill up the DRF with the requested information and add your signature to it. Submit the form to the DP along with your Physical certificates. You should not forget to add surrendered for dematerialisation on each of the physical share certificates
- The DP will process your request after receiving the DRF along with your surrendered physical share certificates
- Post these, the DP will send your Dematerialisation request to a Registrar and Share Transfer Agent (RTA) that is appointed by the Company.
- Once the Dematerialisation request gets passed and approved, the physical shares get destroyed and then the Demat account gets credited with the required number of shares.
The Indian stock markets do not recognize physical certificates as legal anymore. Even when you still are the owner of the physical certificates, you can not trade them using paper shares. If you do want to trade your physical shares you will have to convert them into electronic by opening a Demat account and putting in a request for dematerialisation. With Rurash, you require minimal intervention and the entire process only takes about 2-3 weeks to finish .