Dematerialization is the process by which physical share certificates are converted into digital or electronic form. These dematerialized shares are held in demat account that is held with a depository.
The basic need is to smoothen the process of buying, selling, transferring and holding shares and also about making it cost-effective. All the shares are stored in an electronic form instead of physical certificates.
The Depositories, Depository Participants, and other intermediaries facilitates holding and transferring of shares in demat form.
It is sometimes difficult to keep track of all the paper-based documents. Shares that are dematerialized receives credits and bonuses right into their account hence no chances of loss in transit.
Some important benefits of dematerialization are given below:
i) Convenient- A demat account provides the facility to carry out the transactions electronically. The investor can have access to the Demat account at anytime.
ii) Safety- The risks like theft, damage, loss of share certificates, etc. that were associated with holding shares in physical form are eliminated.
iii) Easily Searchable-The shares in the demat account can easily be searched by using the client details provided by the depository participant.
iv) Electronic fund transfer- By linking the demat account with the bank account, funds can be easily transferred. This saves from the hassles of drawing a cheque or transferring the funds manually.
v) Reduced Paperwork- The requirement for paper work is reduced as opposite in the case of physical share certificates.
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(Republished with amendments)
