Dematerialization of stocks

Dematerialization, as the name suggests, is a term used for conversion of stocks from their physical form (physical stock certificates) to the dematerialized or electronic form. After dematerialization, stocks cease to exist in their physical, i.e. material, form. This conversion is done by the depository which also keeps custody of dematerialized stocks on behalf of stockholders. There are two depositories in India; the CSDL (Central Securities Depository Limited) and the NSDL (National Securities Depository Limited). The CSDL acts as a depository for BSE, whereas the NSDL acts as a depository for the NSE.

To best understand what a depository is and how it functions, think of it as a bank. For all intents and purposes a depository is a securities bank which holds stocks and bonds in the electronic form on behalf of its deposit holders just as your money held in normal bank is reflected as an entry in your pass book. It issues account holding statements and account transaction statements to its depositors in the same way that a bank does. A depository provides services to investors through its agents called Depository Participants (DPs). These DPs are mostly banks, financial institutions and brokers. Dealing with a depository participant in depositing and withdrawing your demat stocks (an abbreviated form of dematerialized stocks) is quite similar to operating a bank account.

Locating a depository participant in your city is not a major problem. The best course of action is to deal with the same DP as does your broker. This will make your stock transactions easier and speedier. Also, in case any problem arises it would be easier for you and your broker to solve it since you would both be dealing with the same DP."

Dematerialization of stocks with a DP involves a simple procedure. After opening a demat account with a DP, all you have to do is to surrender your physical stock certificates, after canceling them, to the DP along with a Demat Request Form (DRF). In the DRF you will be required to fill in all particulars of your stocks, such as their folio numbers, distinctive numbers, stock certificate numbers, etc. The DP then sends the DRF to the company, or its registrars and transfer agents, for conversion of the stock certificates to their dematerialized, or electronic, form. After conversion they are credited to your account with the DP. This whole process of dematerialization normally takes about one month or so. For the detailed procedure of opening and operating a demat account and how to operate it, it would be advisable to consult your DP.