Since the inception of electronic share trading in India and Demat accounts, we have witnessed a gradual decline in possession of physical share certificates. The Securities And Exchange Board Of India has dematerialised shares under the companies act 2013 and made it compulsory that firms will release shares only in dematerialised form instead of physical share certificates. Now, as a retail investor, you might be curious about the dematerialisation of unlisted shares. Stride with us until the end of this write-up to learn everything about the dematerialisation of unlisted shares.
What is Dematerialisation In The Share Market?
Dematerialisation is converting physical securities and share certificates into electronic or digital assets. The basic concept of dematerialisation is to make the share trading process (buying, selling, holding and transferring shares) smoother, convenient, cost-effective, and transparent. If an investor has a Demat account, all their securities are stored in digital form rather than a physical certificate. Nearly all trading institutions require Demat accounts to buy unlisted shares in India because it is considered the most accurate and uniform way of record keeping.
Why is Dematerialisation Necessary?
At times, keeping track of physical shared documents becomes difficult since there is always a probability of missing an important document from a huge collection of papers. A small piece of paper can cause a decline or surge in the share market or impact any associated firm. Dematerialisation is applicable to shares and other forms of investment assets such as equities, bonds and government securities. In dematerialisation, keeping unlisted shares in a Demat account is similar to using a bank account that keeps an individual’s capital and helps avoid using physical currency when a transaction occurs. Listed or unlisted shares transferred through the Demat account get credits and bonuses right into the Demat account.
Benefits of Dematerialisation
Apart from converting shares and other investment assets into digital form, there are numerous other benefits. Some of them are mentioned below.
Easy and Convenient
Dematerialisation allows account holders to carry out transactions electronically, and they do need to be physically present at the broker’s office to settle the transactions. Additionally, investors can access their Demat account from anywhere using a computer, laptop or smartphone.
An Investor can link their bank account with a Demat account to buy unlisted shares in India and quickly transfer funds. Hence, they can save time and effort by writing a cheque or manual money transfer.
Safe And Secure
Transferring listed or unlisted shares electronically through a Demat account is the most secure and convenient way of transferring shares or investment assets. Thus, investors can avoid all the physical risks related to unlisted shares, including theft, loss or damage.
Demat account holders can nominate someone to operate their Demat account in their absence. Thus, nominees can execute transactions through their Demat accounts when they cannot do it due to some unwanted situations.
Unlock Loan Facility
Demat account holders can request and get approval for loans against the dematerialised shares and assets reserved in their accounts. They can keep the holdings in the Demat account as collateral and avail of loans against them.
How Does Dematerialisation Impacts Shareholders?
Previously, stock exchange transactions were performed by traders who kept shouting buy and sell prices. The transactions were documented on paper receipts, and the documentation kept going to correctly register all transactions even after closing the markets. With the penetration of computers and electronic trading platforms, there is no longer a need to keep securities in certificate form as they can be electronically registered and transferred. This has made things easier for shareholders.
Issue of New Shares
As the Securities and Exchange Board In India has made it compulsory to issue or trade shares in electronic or digital form, shareholders can issue new shares electronically with optimum ease, and potential investors would transfer funds electronically to their Demat accounts.
Impact For Shareholders
All unlisted firms have to issue their securities only in dematerialised form. Apart from the shareholders holding securities or shares in physical form, they can not club securities or shares with the company or its registrar and transfer agents for further transactions.
Public Company’s Obligations
The unlisted public companies can enable the fast dematerialisation of their stock shares by applying to a depository for the international security identification number (ISIN) for every type of stock issued and immediately informing all current security holders of such institutions.
If you also wish to open a Demat account to buy unlisted shares or other securities of unlisted companies, you can count on Stockify. From Demat account opening to the procedure for transfer of shares of unlisted public companies, KYC, selection of best-unlisted shares to invest in and fund transfer, we will provide you inclusive assistance. Moreover, our experts will help you analyse the market trends, financial statements and reports of companies for smart investment.