Dematerialisation is the process by which physical share certificates of an investor are converted to an equivalent number of securities in electronic form and credited into the investor’s account maintained with his/her depository participant (DP). It is like having a bank account where instead of money, you hold securities in your account.

Dematerialisation is a recently introduced process by which physical share certificates are converted into electronic form. If you own shares in a company, then you must be in possession of share certificates. Dematerialisation means surrendering the physical form of shares to a depository and receiving the shares electronically. A depository is like the central bank of the country, and depository participants (DPs) are like the banks with which you can open an account so as to enable the depository to credit your account with these shares.

According to Securities Exchange Bureau of India (SEBI) guidelines, banks, custodians and stockbrokers can become DPs.

An investor submits his shares to the DP who will in turn send the shares to the company for dematerialisation. This is a process by which the company cancels the physical shares and credits your account with an equal number of shares. If you are holding shares for many years, it is quite likely that the company may ask for a reconfirmation of your signature, as there may be some differences in the signature in their records and your current signature.

Once the account is opened and shares are dematerialised, buying and selling of these shares is done through this account. The DP gives each investor or ‘account holder’ a passbook (just like a bank passbook) or a statement of holdings, which is regularly updated. When shares are converted into the electronic form, they will be credited to your account and if they are sold, they will be debited. At the end of every fortnight, you will receive a statement of account showing the number of shares debited and credited into your account.

When trading is done through the electronic mode, investors have to pay fees similar to the brokerage. However, the charges are lower than brokerage, as the physical counting of shares is absent.

While it is not yet compulsory that all the shares listed on the stock exchanges are dematerialised, the NSDL regularly announces the companies whose shares have to be compulsorily dematerialised. But there is a steady increase in the number of companies trading in the dematerialised shares.

How can one convert physical holding into electronic holding i.e how can one dematerialise securities?
In order to dematerialise physical securities held by an investor, he has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical share certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN Number. The complete process of dematerialisation is outlined below:

Surrender certificates for dematerialisation to your depository participant.
Depository participant intimates Depository (NSDL or CDSL) of the request through the system.
Depository participant submits the certificates to the registrar of the Issuer Company.
Registrar confirms the dematerialisation request from depository.
After dematerialising the certificates, Registrar updates accounts and informs depository of the completion of dematerialisation.
Depository updates its accounts and informs the depository participant.
Depository participant updates the demat account of the investor.

What is an ISIN?
ISIN (International Securities Identification Number) is a unique identification number for a security. India follows the norms stipulates by Association of National Numbering Agency (ANNA) which is the international body for issue of ISINs. National Securities Depository Limited (NSDL) issues ISINs in India and a complete list of ISINs is available on their website: www.nsdl.co.in. Also note that ISIN of a security changes in case of certain corporate action such as split in share par value, consolidation of share capital etc. Hence you have to quote the correct ISIN at the time of giving dematerialisation request as well as at the time of transfer of shares.

Do dematerialised shares have distinctive numbers?
Unlike physical shares, dematerialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be identical and interchangeable