A Demat account holds securities like shares and bonds, mutual fund units, and government securities. The dematerialization of paper certificates to electronic records promotes transparency, reduces the risk of loss or damage to the physical securities, and facilitates trade and settlement.
Dematerialization Process
The dematerialization process takes the investor through several steps, each referring to a duly defined procedure and involving, respectively:
Opening a Demat Account:
To initiate the process, an investor must first open a demat account with a registered depository participant (DP). A depository participant acts as an intermediary between the investor and the depository. The account opening will require identification documents, proof of address, and a passport-size photograph.
Filling the Dematerialization Request Form (DRF):
Upon activation of the account, the investor is required to fill out the dematerialization request form for demat account closure and to surrender the original physical share certificates, stamping each certificate “Surrendered for Dematerialization.”
Submission to the Depository Participant:
The duly completed request form and certificates are deposited with the DP, who checks the details and forwards the request to the concerned issuer or registrar and transfer agent (RTA).
Verification and Confirmation:
Upon arrival of the request at the issuer or RTA level, the authenticity of the documents is verified. In case everything is in order, the dematerialization request is accepted, and their records are updated accordingly.
Credit of Securities into the Demat Account:
Following the granting of approval by the issuer, the equivalent number of securities are credited to the investor’s demat account. The securities are open to being seen, held, and transacted electronically by the investor.
Demat Account for Minors: Important Points
Eligibility and Documentation: While legally a minor is someone under the age of 18, the documents required are the proof required for birth date—the minor’s birth certificate or school leaving certificate—besides a PAN card and address proof of the guardian.
Guardian’s Role: The account is legally operated by either a parent or a court-appointed guardian.
Investment Restrictions: This demat account for minors keeps the securities in an electronic form but does not entitle them to open a trading account. Hence, the minor can just get securities through transfer/corporate actions.
Transfer on Attaining Majority: As soon as the minor turns 18 years old, the account will have to be converted into a regular individual demat account. This conversion involves a fresh set of documentation as well as a new account opening form signed in the name of the turned adult investor.
Key Things You Must Know
There are some things that investors have to consider before starting the dematerialization process:
Accuracy of Details: The name of the person on the share certificate must be the same name under the demat. Any mismatch would lead to the request for dematerialization to be rejected.
Joint Holding: If the physical certificate is jointly held, all holders must possess a Demat account in the same order of names. Each holder must sign the dematerialization request.
Pending Corporate Actions: Must check whether there are any outstanding dividends, bonus issues, or any other corporate actions pending on the physical shares. After dematerialization, all those will directly be credited to the demat account.
Transaction Charges: Dematerialization would thus attract the service charges of depository participants. Be aware of such charges before proceeding.
Advantages of Dematerialization
Dematerialization provides a systematic and expedient process for holding securities and their management in an electronic form to eliminate risks of theft, damage, or forgery of the physical certificates; to transact faster; to facilitate investment monitoring conveniently; and to smoothen the process of corporate action. Securities in a demat account can also be tracked and managed better through digital platforms.
Dematerialization and Regulatory Compliance
Dematerialization of securities has now become a requirement in many countries for regulatory compliance while transacting through stock exchanges. Investors who have physical shares are encouraged to dematerialize them in electronic format to comply with those current rules. Also, holding security in demat form allows a faster settlement cycle and should reduce the delays in the transfer process.
Conclusion
Dematerialization is an important aspect of the modern securities market infrastructure. The process involved should manage financial assets securely and conveniently.
