Q.What is Dematerialisation?

Dematerialisation is about converting paper share certificates into an electronic record, which is the foundation of today's online trading system.

Dematerialisation is the process by which physical share certificates are cancelled and replaced with an equal number of securities recorded electronically in the investor's demat account. It was introduced to remove the problems of the old paper-certificate system — loss, theft, forgery, delayed transfer and 'bad delivery' of certificates.

To hold dematerialised securities, an investor opens a demat account through a Depository Participant (DP), such as a bank or broker, who acts on behalf of a depository. Once shares are dematerialised, buying, selling and transferring them requires no physical movement of paper at all — ownership changes hands purely through electronic entries, making settlement faster, cheaper and far more secure.

A common slip is confusing 'dematerialisation' (converting existing physical certificates to electronic form) with 'rematerialisation' (the reverse process) — examiners sometimes test this distinction directly.