What is Dematerialisation

Before dematerialisation was introduced, investors had to manage the storage of their physical share certificates. This method was prone to various risks like loss and theft. With the transition to electronic investment management, the process to store and handle securities has been simplified. 

 

As of April 1, 2019, the Securities and Exchange Board of India (SEBI) stopped the transfer of shares in physical form in India. While you can still hold existing shares in physical form, new shares will not be issued in that way. Dematerialisation aims to promote transparency and eliminate fraudulent activities. It also makes the trading process more efficient. 

Here are a few drawbacks associated with the dematerialisation process:

High-frequency Trading

Digital advancements have simplified trading. However, this ease of access can lead to impulsive trading. Such behaviours are detrimental to long-term wealth generation. 

Technical Skill Gap

Beginners unfamiliar with computers and smartphones may struggle. Operating through a Demat account could be difficult for those who are used to physical certificates.

Annual Fees and Charges

Demat accounts have an annual charge. This fee applies even if you do not hold securities in the account.

There are a few charges associated with the process of dematerialisation of shares, such as: 

Account Opening Charges

You typically pay a one-time fee to open a Demat account.

Annual Maintenance Charges

Most brokers will charge an annual fee to maintain your Demat account.

Transaction Charges

Brokers will levy a charge on the buy and sell transactions that you execute via your Demat account. These fees can either be a fixed amount or a percentage of the transaction value.

 

Note: There may be a separate fee for dematerialising your physical shares. The fee depends on your chosen DP. It also varies with the number of shares being dematerialised.

Here are some documents usually required for dematerialisation:

• Dematerialisation Request Form (DRF): Fill out and submit this form to yourDP

• Physical Share Certificates: Submit the original share certificates you want to convert along with the DRF

• KYC Documents: You must submit your KYC documents to the DP

• Power of Attorney (POA): You must submit a POA authorising the DP to carry out dematerialisation on your behalf

Dematerialisation's future is promising. More investors are choosing electronic shares due to its convenience. Technological advancements will further streamline and lower the cost of dematerialisation.

Blockchain

While still under exploration, blockchain technology has the potential to revolutionise dematerialisation. Its secure and transparent ledger system can enhance security and record-keeping for electronic shares.

AI and Machine Learning (ML)

AI and ML can potentially analyse vast amounts of data to identify investment trends and automate parts of the dematerialisation process, making it more efficient.

 

Overall, a more streamlined and cost-effective dematerialisation process is likely to attract more investors to the stock market, fostering further growth.

 

Dematerialisation has transformed the way we invest in the stock market. While some charges are associated, the benefits outweigh the costs. As technology evolves, we can expect more advancements in dematerialisation. The future holds further innovations in this field.