Dematerialization refers to the physical conversion of securities(shares, debentures etc.) into electronic form.The risks concerned with physical certificates like loss, forgery and damage are completely eliminated with a (Dematerialization) or DEMAT account.
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It refers to the process in which physical share certificates of an investor are taken back by the company. Then an equivalent number of shares, etc. in the electronic form are credited to the investor’s account with his Depository Participant.
Process of Dematerialization:
To smoothen the process of buying, selling, transferring, and holding shares SEBI provides the guidelines and appropriate working system. The following points explain that how it works.
1. With opening a Demat account the process of Dematerialization is a start.
2. To convert the physical shares into electronic form, A (DRF) Dematerialization Request Form has to be filled in and deposited along with share certificates. Each share certificate, required to mentioned the Surrendered for Dematerialization’note.
3. When the request is approved, the share certificates which are in the physical form will be destroyed and confirmation of dematerialization will be sent to the depository.
4. The depository will then confirm the dematerialization of shares to the Depository. Once it is done, a credit in the holding of shares is transferred to the investor’s account electronically.
5. It takes time about 15 to 30 days from the submission of the dematerialization request.
6. Dematerialization is only possible with a Demat account, hence it is required to learn how to open a Demat account to understand dematerialization.
Purchasing dematerialised securities:
Step 1: Select a broker/agent who can facilitate the purchase of the securities.
Step 2: The broker will arrange for the payment to the clearing corporation on the pay-in day
Step 3: The securities (shares, debentures etc.) are credited to the broker’s account on the pay-out day.
Step 4: The broker will give instructions to its (DP) Depository Participant to clearing account.
Step 5: The depository confirm the dematerialization of shares to the DP. When it is done, a credit in the holding of securities will indicates in the investor’s account electronically.
Step 6: Now, You will receive shares in your account.
Selling dematerialised securities:
Step 1: Select broker/agent and then sell the securities in a stock exchange which is linked to the NSDL (National Securities Depository Limited)
Step 2: The Depository Participant required to be instructed to debit your account with the number of securities sold and credit the agent’s clearing account
Step 3: Now, You need to send the delivery instruction to your Depository Participant (DP) by using the delivery instruction slips.
Step 4: When the request is approved, then share certificates in the physical form will be destroyed and a confirmation of dematerialization will be sent to the depository.
Step 5: The broker will give instructions to its DP for delivery to the clearing corporation.
Step 6: And in this step, You will receive the payment from the broker for the sale of securities.
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