Demat is the abbreviation for "Dematerialization", which means to convert physical shares and
securities into electronic form. Demat Accounts are required to hold shares in electronic form instead
of paper form. Demat Accounts keep the shares safe, thereby preventing loss of shares or risks
related to forgery. It is an easy method to trade securities quickly. A Demat account and a trading
account are necessary to carry out the trading of shares in the stock market.
As we proceed further, it is essential to know who is associated with the Demat process. Demat or
dematerialization requires mainly four agents or participants:
1. Investors - An investor can be the individual, or a partnership firm or a company that is the
beneficial owner of a Demat account where the shares and securities are held. The investor's name
is linked with a depository for holding securities in Dematerialized form.
2. Depository - It is an organization that acts as a storehouse for the investor's securities and shares
in electronic form. It acts as the connection between listed companies and the shareholders who buy
shares issued by the company. There are 2 depositories in India:
o NSDL (National Security Depository Ltd)
o CDSL (Central Depository of Securities India Ltd)
3. Depository Participants - The Depository Participants or DP are registered agents of the
Depositories. SEBI has registered them, and they play the role of an intermediary between the
investor and the depository. They are also known as the stockbrokers of the depository. The investor
has to open an account in a depository through the help of a DP.
4. The Issuing Company - This is a legal entity or company which is enlisted in the depository. The
issuing company creates, registers and sells securities to the public for funding its operations. The
company mainly issues securities like bond, shares, commercial paper, etc.
Process of Dematerialization(Demat)
The process of dematerialization is detailed and crucial for investors to understand. The following
section contains the process of dematerialization:
1. Investor surrenders all the physical certificates owned by him to the DP for dematerialization
2. The DP updates the depository about the request of conversion of shares into electronic form
3. The DP submits the certificates to the registrar of the Issuer Company
4. Registrar confirms the request for dematerialization after consulting with the depository
5. The registrar of the Issuer Company dematerializes the securities and certificates post-
6. The registrar updates the account and informs the depository about the completion of the
7. The Depository updates the investor's account, and the DP is duly informed of the act
8. The DP updates the Demat account of the investor