How to demat your shares?
We saw in our earlier post, “FAQs on Demat of Shares: Is it mandatory to demat shares“, what is dematerialization or demat of shares, why is it needed and for whom it is mandatory to demat the share?. Now let us look at the detailed process involved in demat of shares and other securities.
Dematerialization or Demat is a process by which a physical share certificate or securities is converted/recorded in electronic form. The person who is responsible for this conversion is called “Depository” and there are various institutions that help a Depository in the process of demat. They are called “Depository Participant” or “DP”. DP acts as an agent of the depository and is the face of the final customer.
Currently, there are two depositories licensed to operate in India:
Both these depositories are renowned with a wide network and centralized database. These depositories also have inter-depository connectivity. Hence from an individual perspective, both NSDL and CDSL rank equally.
On the other hand, an individual should select its DP carefully. DP is an agent who corresponds with depositories and you. All the transactions like buy/sell/ subscribe etc are done through these DPs and brokers. There is a wide range of DPs operating in India. Most of the banks and big brokerage houses act as DPs. Hence while selecting a DP, one should look at the following key factors along with others:
- Service Charges levied by the DP and
- Promptness to address the service-related issues
Procedure for demat- applicable to Individuals:
To get started with Share Market or owning a security one should open a Demat Account. Lets look in details, how to get started:
Step 1: Select a DP that offers Demat services
An individual can select a DP based on the criteria mentioned above. At the same time, one can also look at its banking relationship. Sometimes opening a Demat account with an existing bank is convenient too.
Step 2: Open a Demat Account
An opening of a Demat account is similar to the opening of a bank account. One must fill up an Account Opening Form and sign a “Participant-Client Agreement”. A unique client ID number will be given, which will be quoted in all correspondence with the DP.
Primarily, the following documents are required to open a Demat account:
- One identity proof like Aadhar card, passport, voter ID, PAN card, Driving license etc
- Address proof like Aadhar card, passport, utility bills etc and
- PAN Card: Please note that PAN card is a MUST document for opening of a demat account. Every individual is required to submit PAN for the opening of demat account unless specifically exempt.
Step 3: Start transacting
One can start transactions like the purchase and sale of securities through a broker. On purchase of securities, the broker will give instructions to its DP to debit the clearing account and credit the same to your account. After making payment, you will receive shares into your account. For this, you will need to give ‘Receipt Instructions‘ to the DP. One can also provide standing instructions during the opening of your account. Generally, in an online platform, most of this paperwork is eliminated and buy and sell is done quickly and hassle-free.
How to convert physical shares into Demat?
To convert physical shares into demat, after opening the demat account as per Step 2 above, one should fill up and submit a Dematerialization Request Form (DRF) provided by the DP duly signed by all the holders and surrender the physical shares for demat to the DP. DP will process the request by communicating with the Company. After approval of the request, the share certificates in the physical form will be destroyed. The confirmation of dematerialization will be sent to the depository.
Question: Can NRI open a demat account and transact in securities in India?
Yes. NRI can open a demat account and transact in securities. For this, he will need an NRI savings account, NRI PIS / Non-PIS account, PAN and NRI trading account.
Procedure for demat – applicable to Pvt. Companies:
In case a Pvt. Ltd. company wants to demat its shares, it should first amend its Articles of Association by passing a special resolution in the general meeting of the company, thereby allowing the company to issue shares in demat form.
Private companies are required to register with both the central depositories i.e., NSDL and CDSL. These depositories have their own terms of registration.
Once the registration is successful depositories will provide companies with an International Securities Identification Number (ISIN) for each of the shares. “ISIN” is a 12 digit alphanumeric code. For all securities registered on depository in India, first, two digits of the ISIN code are ‘IN’, as this indicates the country.
If the private company wants to transfer its dematerialized shares, it needs a Registrar and Transfer Agent (RTA). RTA is an agent of the issuer. RTA act as an intermediary between the issuer and depository for providing services such as Dematerialization, Rematerialisation, Initial Public Offers, etc. RTA arrange demat connectivity from depositories like NSDL or CDSL by entering into a tripartite agreement between the company, the depositories and the transfer agent.
Procedure to be followed
To convert physical shares into demat, the company should follow certain procedures laid down by depositories like NSDL and CDSL.
- The company should ensure that the Beneficiary Owner (BO) has to open a demat account
- BO will follow the conversion process mentioned above in How to convert physical shares into demat?
- RTA / the company will verify the genuineness of the certificates and will approve the request
- Once the request has been successfully approved, DP would cancel the physical certificates, generate a Demat Request Number (DRN) and send an electronic communication to the depository. DP also needs to courier the DRF and the share certificate to the company.
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