What Is Dematerialisation of Shares? The Demat Process

Dematerialisation of shares is the statutory process that turns a paper share certificate into an electronic entry in a depository's records. It is not a formatting change. Ownership is legally restructured: the issuer cancels the certificate and enters the depository as the registered owner, while the depository records you as the beneficial owner. This page walks the process as the Depositories Act and SEBI's regulations actually set it out, with the deadlines each step carries.

How does dematerialisation of shares work, step by step?

Section 6 of the Depositories Act, 1996 sets the spine, and regulation 74 of the SEBI (Depositories and Participants) Regulations, 2018 puts clocks on it.

1. You open an account and surrender the certificate. A person who has entered into an agreement with a depository under section 5 surrenders the certificate of security to the participant. Where a custodian has been appointed, the certificate may be surrendered through the custodian.
2. The participant forwards it, within seven days. The participant sends the details of the certificate to the depository, confirms the agreement with the holder, and under regulation 74(4) furnishes the details and the certificate to the issuer within seven days of receipt.
3. The issuer cancels and confirms, within fifteen days. Under regulation 74(5), within fifteen days of receiving the certificate from the participant, the issuer confirms to the depository that the securities are listed on the exchanges where its earlier securities are listed, mutilates and cancels the certificate, and substitutes the depository as the registered owner in its records. The listing condition does not apply to unlisted companies.
4. The depository records you as beneficial owner. Immediately on receiving that information, the depository enters the name of the person who surrendered the certificate as the beneficial owner, records the participant, and intimates the participant.
5. Reconciliation runs daily. Under regulation 75 the issuer or its agent reconciles the records of dematerialised securities against all securities issued, on a daily basis.

Which securities can be dematerialised?

Regulation 42 of the D&P Regulations lists them, and the list is wider than equity: shares, scrips, stocks, bonds, debentures, debenture stock, Indian Depository Receipts, Electronic Gold Receipts and other marketable securities of a like nature; units of mutual funds, rights under collective investment schemes and venture capital funds, commercial paper, certificates of deposit, securitised debt, money market instruments, Government securities and unlisted securities; plus anything else the Board notifies.

The Electronic Gold Receipt was inserted into that list by the SEBI (Vault Managers) Regulations, 2021 with effect from 31 December 2021, which is a useful reminder that regulation 42 is a living list.

Why did the remaining physical holdings have to move?

Because they can no longer be transferred. Paragraph 4.64.1 of SEBI's Master Circular for Depositories records the position plainly: in terms of Regulation 40 of the LODR Regulations, transfer of securities held in physical mode is not permitted. A physical certificate can still be held, but it cannot be sold or transferred without being dematerialised first, which turned demat from an option into the only exit.

The name mismatch check that stops a demat request

This is the step that surprises people, and it comes from SEBI circular dated 5 November 2019, consolidated at paragraph 4.64.2 of the depositories master circular. To protect against fraudulent demat of physical shares, SEBI directed:

• Every listed company or its registrar to give the depositories a static database of members holding shares in physical mode as on 31 March 2019, with names, folio numbers, certificate numbers, distinctive numbers and PAN.
• Depositories to validate every demat request received after 31 December 2019 against that database, retrieving the shareholder name recorded against the folio and certificate number and comparing it with the demat account holder's name.
• On a mismatch, the system raises a flag and the applicant must produce a document explaining the difference: a passport, a legally recognised marriage certificate, a gazette notification of a name change, or an Aadhaar card.
• On a complete mismatch, the depository cannot resolve it at all. The applicant has to approach the company or its registrar to establish title.

So a rejected demat request on an old certificate is usually a 2019 database saying a different name.

What dematerialisation does not change

It does not change what you own or what you are owed. Section 10(3) of the Depositories Act keeps the beneficial owner entitled to all the rights and benefits, and subject to all the liabilities, in respect of the securities held by the depository. Dividends, votes and bonus entitlements travel with you, not with the depository.

It is also reversible. Section 14 lets a beneficial owner opt out of a depository for any security, and the issuer must issue the certificate within thirty days of receiving intimation from the depository, on fulfilling the specified conditions and fees. That is rematerialisation, and it is the only door back to paper.

One thing demat changes for anyone reading filings: once holdings are electronic, the depository's register of beneficial owners is the source the company draws on for its shareholding pattern and for pledge records, which is why those disclosures can be struck as of a precise date.

So dematerialisation of shares changes the form of the holding and the register it sits in, and leaves every right attached to it exactly where it was.

Flock reports the filings themselves, each one dated and linked to its source. What any disclosure means for your money is your call to make. Not investment advice.