Shares are some units of ownership in respect of financial assets. While owning shares, it does not mean that shareholder has direct control over business operations. A shareholder has entitled the possessor to an equal distribution in any profits, if it is in the form of dividends. Demat Account is compulsory for buying or selling shares in stock market.

Demat Account is the process by which shares of physical form are converted into electronic form or we can say physical shares certificates are converted into electronic shares certificates. Physical shares are written document which is an agreement between corporation and investor and its serves as legal proof of ownership of the number of shares indicated whereas an electronic form is computer program version of a paper from. Compared to paper forms, e-forms allow more focus on the business process or underlying problem such as expense reporting, purchasing, or time reporting.

Demat Account looks like a bank account and this conversion process is same as conversion of paper money into electronic bank account. Conversion of physical certificates into electronic form benefits investors immensely. Dematting of shares eliminates risks of bad delivery, postal delay, lost due to fire, theft etc. Investor does not have to pay any stamp duty on transfer of shares and they can be transferred instantaneously. Investor also gets profit by direct transferring of credit and rights in their account and this reduces paper work.

In order to stock trading in Demat form, you have to open a demat account with the help of DP (Depositary Participants) and investor choose DP on the basis of charges for opening a demat account and other facilities provided by DP. Most of the stock brokers also have DP themselves. The trading process in certain shares has to be compulsory settled in demat form according to SEBI guidelines and can not be settled in physical form.

How Physical shares dematerialized?

A depository account is opened by depository participants in order to place the depository facilities. Many Banks and investment companies provide these types of services. This process is same as banking system in which we required bank account in order to conduct banking operations. DPs are members of an organization which is an organization for holding investor’s shares in electronic form.

The process of Dematting physical shares in to electronic shares is very simple. An investor holding physical shares of a company and then open a demat account with the help of DP and fill the Demat Request Form and submitted the physical shares certificates to the DP for dematting. DP forward the form and physical share certificates to the Registrar and Transfer Agent or share Transfer Agent of the concerned company for verifications registration of shares in depository’s name. After Verification of ownership of shares, DP destroys the physical share certificates and registered these shares in the name of depository in the company records. Upon receiving such confirmation, the depository credits the shares in electronic form in investors demat account.

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