Demat is a commonly used abbreviation of Dematerialisation, which is a process whereby securities like shares, debentures are converted from the "material" (paper documents) into electronic data and stored in the computers of an electronic Depository.
You surrender material securities registered in your name to a Depository Participant (DP). These are then sent to the respective companies who cancel them after dematerialisation and credit your Depository Account with the DP. The securities on dematerialisation appear as balances in the Depository Account. These balances are transferable like physical shares. If at a later date you wish to have these "Demat" securities converted back into paper certificates, the Depository can help to revive the paper shares.
What is the procedure for the dematerialisation of securities?
Check with a DP as to whether the securities you hold can be dematerialised. Then open an account with a DP and surrender the share certificates.
What is a Depository?
A Depository is a securities "bank," where dematerialised physical securities are held in custody, and from where they can be traded. This facilitates faster, risk-free and low cost settlement. A Depository is akin to a bank and performs activities similar in nature.
At present, there are two Depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (CDS). NSDL was the first Indian Depository. It was inaugurated in November 1996. NSDL was set up with an initial capital of Rs 124 crore, promoted by Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), National Stock Exchange of India Ltd. (NSEIL) and the State Bank of India (SBI).
Who is a Depository Participant (DP)?
NSDL carries out its activities through business partners - Depository Participants (DPs), Issuing Corporates and their Registrars and Transfer Agents, Clearing Corporations/Clearing Houses? NSDL is electronically linked to each of these business partners via a satellite link through Very Small Aperture Terminals (VSATS). The entire integrated system (including the VSAT linkups and the software at NSDL and at each business partner's end) has been named the "NEST" (National Electronic Settlement & Transfer) system. The investor interacts with the Depository through a Depository Participant of NSDL. A DP can be a bank, financial institution, a custodian or a broker.