Before the National Securities Depository Limited (NSDL) was set up, the stock exchange was considered to be a risky venture. Over time, unscrupulous operators had made it very difficult for people to invest in stocks. They would either print fake share certificates or alter pieces of paper and sell them off in the marketplace, ultimately giving the entire business a bad name.
However, after the scam of 1992, stringent laws were put into place, and physical shares were replaced with electronic entries. While investors were still allowed to hold physical shares, they were not allowed to sell such shares in the market. Soon after this, many investors decided to convert their shares into demat form, although some chose to stay put with their physical shares.
To understand this better, let’s first understand the concept of dematerialisation and what is a demat account?
Dematerialisation is the process of converting physical shares into electronic form. These shares are bought and held in a demat account, making it easy for traders to maintain and access their accounts from around the globe. This type of account also holds the investments made by an individual in the form of shares, government securities, bonds or mutual funds, all in one place.
Now, the next question is, how to open demat account?
To open a demat account, first you will have to select a Depository Participant you want to open your account with. Depository Participants are intermediaries between account holders and the Central Depository. Today, there are many brokerage firms, banks and other financial institutions that offer such type of service.
So, if you’d like to convert your physical shares into dematerialised certificates, here’s how to go about it –
- First, open a demat account with a depository. This will require your PAN card or any other identity proof certificate.
- Fill a demat request form and hand in your share certificates.
- The depository will then send an electronic request to the Registrar and Transfer Agent (RTA) along with the physical shares.
- Thereafter, the RTA will verify the physical shares and based on the results, sign it with a “surrender for demat” stamp on it.
- Once the entire procedure is complete, the confirmation will be sent to the depository.
- And lastly, the account will be credited with the shares successfully.
Also Read: Secret of Value Investing
According to the Securities and Exchange Board of India (SEBI), all shareholders have been directed to convert their share certificates into dematerialised form by December 5th, 2018. This is to ensure that securities cannot be processed or transferred unless they are held in demat form, with a depository. This can be looked at as an opportunity to clean up the long-drawn paper route and unlock its immediate value.
The move is a mindful step towards a world that allows efficient and fair trade in the foreseeable future. So, if you have physical cerificates lying in your closet or bank lockers, convert them into demat and uncover the wealth within.