Depository and Dematerialisation
Shares are traditionally held in physical or paper form. This method has its own
inherent weaknesses like loss/theft of certificates, forged/fake certificates, cumbersome and time consuming procedure for transfer of shares etc. Therefore, to eliminate these weaknesses, a new system called Depository System has been established.
A depository is a system which holds your shares in the form of electronic accounts in the same way a bank holds your money in a savings account.
Depository System provides the following advantages to an investor :
Your shares cannot be lost or stolen or mutilated;
You never need to doubt the genuineness of your shares i.e., whether they are forged
Share transactions like transfer, transmission, etc., can be effected immediately;
Transaction costs are usually lower than on the physical segment;
There is no risk of bad delivery;
Bonus/Rights share allotted to you will be immediately credited to your account; and
You will receive the statement of accounts of your transactions/holdings periodically.
When you decide to have your shares in electronic form, you should approach a Depository Participant (DP) who is an agent of the depository and open an account. You should surrender your share certificates in physical form and your DP will arrange to have them sent to and verified by the company and on
confirmation, credit your account with an equivalent number of shares. This process is known as de-materialisation. You can always reverse this process if you so desire and get your shares reconverted into paper format. This process is known as re-materialisation.
Share transactions (like sale or purchase and transfer/transmission, etc.) in the electronic
form can be effected in a much simpler and faster way. All you need to do is that after confirmation of sales/purchase transaction by your broker, you should approach your DP with a request to debit/credit your account
for the transaction. The depository will immediately arrange to complete the transaction by updating your account. There is no need for separate communication to the company to register the transfer.