Dematerialisation means the conversion of a physical share certificate to electronic form representing the same number of shares held.

Prior to the dematerialisation era, shares were held in physical form by shareholders. They were sold physically and were sent to the companies for transfer which was then manually done on the reverse of the physical share certificate.

With the evolution of information technology, voluminous and cumbersome paper work involved in the scrip based system has been eliminated through dematerialisation of shares and automation of the process of transactions.

It offers scope for paperless trading through state-of-the-art technology, whereby share transactions and transfers are processed electronically without involving any share certificate or transfer deed after the share certificates have been converted from physical to electronic form.

Dematerialisation attempts to avoid the time consuming and complex process of getting shares transferred in the name of buyers and also aims to shirk inherent problems of bad deliveries, duplication frauds, delay in processing/ fraudulent interception in postal transit etc.

Dematerialisation of shares is optional and an investor can still hold shares in the physical form. However, he/ she has to dematerialise the shares if he/ she wishes to sell the same through the Stock Exchanges. Similarly, if an investor purchases shares, he/ she will get delivery of the shares in dematerialised form.

The Depositories Act, 1996 has been enacted to regulate matters related and incidental to the operation of Depositories and dematerialisation operations. In India, there are

2 Depositories in operation :

National Securities Depository Limited (NSDL) and

Central Depository Services (India) Limited (CDSL).