Disclaimer: All investments are considered high risk. Therefore, you should consult a professional before investing in anything. This article and its content are for general information purposes only and do not constitute financial advice in any way.
Demat or dematerialized shares refer to digital forms that exist as entries in the book depositories. So, you do not get share certificates when you purchase them. Instead, it is stored in the demat system as dematerialized shares.
You can purchase demat shares through SEBI-registered depositories. According to SEBI regulations, IPOs that are over INR10 crore have to be issued as demat shares. So you will have many opportunities to purchase such shares, be it through IPOs or traditional shares of companies.
The Rise of Demat Shares
With the liberalization of the Indian economy in the mid-1980s, the share markets in India witnessed a massive boom. Prior to that, the volume of trade was not very high but the stock market grappled with major issues. Fake shares and signatures, share transfer issues, mismatched signatures, duplication of it, and mutilation of physical share certificates were common issues. This hindered institutions and retail investors from trusting and entering the share market.
The Indian government undertook massive reforms in the financial sector and that led to the automation of depositories and issuance of shares. As a result, stock exchanges and depositories started issuing share certificates in digital form. Once that happened, a major of arbitration cases and disputes due to physical certificates practically disappeared and stock exchanges could work more efficiently. Of course, investors needed to have a depository account and a Demat account for Demat shares.
Understanding Demat Shares
As stated earlier, Demat shares are an electronic form and are sent to an investor’s demat account. These shares do not have certificate numbers and hence, are replaceable. It is important to note that you can dematerialize just those shares that you own and the share certificates that list your name on them.
Once you dematerialize shares, they transform into fungible shares and do not possess any specific identification number. When that happens, the original certificates are shredded and demat shares lose their identity, including folio number.
Requirements to Own Demat Shares
Finance and banking laws have stipulated certain eligibility criteria for shareholders to dematerialize their shares. These are as follows:
- The investor should have a demat account as well as a depository account
- The share should be in the name of the account holder
- It should be of companies that are issued by the depository
- The demat request form should be signed by all account holders for specimen signature match when the need arises
Demat shares allow you to deal with it without any issues. You can easily transfer shares without paying stamp duty and do not have to worry about the loss of share certificates. Transfer of share takes place instantaneously due to the digital nature of the shares. These electronic shares significantly minimize documentation and settlements and payouts are much faster. Above all, you never have to worry about counterfeit shares, mutilation of share certificates, theft of shares, and even forgery.
The demat system ensures liquidity of the capital market. It also attracts foreign investors as there is transparency while buying and selling shares and the trading environment is not just efficient but also risk-free. It makes the capital market more investor-friendly as it reduces documentation and ensures the safety of investments.
How to Transform Physical to Demat Shares
As a new investor, you should consult your brokerage house during the trading account opening process. Make sure that your brokerage house is associated with a depository participant as you would have to fill out an account opening form and then submit a demat request form that should be signed by all shareholders.
Thereafter, you would have to submit the physical share certificates to the depository. On receipt of the demat request form, the depository will forward your request to the Company / Registrars and Transfer Agents of the Company and after proper verification, the physical shares will be canceled and the electronic or demat shares will be issued to you.
Demat account Opening Process
Once you know how to open Demat account and have applied for a Demat account with a stockbroker, you may want to know the status of your application.
After you have submitted your online account opening form and handed over the necessary documents, the stockbroker will verify your details and open your account. You will receive your account login details on the mobile number and the email ID you have registered with your stockbroker.
Most brokerage houses offer the solution to track your application status online. Here is how you can know the status of your Demat account application:
Step 1: Open up the Application Status Tracker
Step 2: Now enter your Application Number
Step 3: Select the Account type (Individual/ Non-Individual)
Step 4: Enter your Personal Details like – First Name, Middle Name, and Last name (Remember that entering the First name is Mandatory.)
Step 5: Enter Your Date of Birth
Step 6: Enter your PAN number
Step 7: Now click on the “Track” button.
And that’s it, your Demat account application status will be shown in the system.
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