Insights & Research

Dematerialization of Shares:Transitioning from Physical to Electronic Securities

Dematerialization of Shares:Transitioning from Physical to Electronic Securities

Dematerialization of Shares:Transitioning from Physical to Electronic Securities

In the fast-paced world of finance, where every second counts, the transition from physical to electronic securities is not just a trend but a necessity. dematerialization,often abbreviated as "demat," is the process that facilitates this transition seamlessly. Let's delve into the world of dematerialization and understand its significance and impact.

The Tale of Investors: Embracing Change

There are two kinds of investors, the one who prefer the traditional way of investing while the other group who are tech-savvy and embrace the digital era. Traditional investors cherish the feeling of holding tangible share certificates. However, as the portfolio grows, managing paper documents, tracking dividends, handling share transfers, and safeguarding certificates have become cumbersome. But by converting the physical certificates into electronic form, we can experience a new sense of freedom; managing the investments becomes effortless, and the transactions are executed at the click of a button.

Dematerialization has gained attention due to the recent amendment in the Companies Act, which mandates it for certain types of companies.

Previously: Only listed companies and unlisted public companies making a public offer of INR 10 crore or more were mandated to dematerialize their shares.

Amendment: In 2018, the Companies Act, 2013 was amended to introduce mandatory dematerialization for unlisted public companies. This means all shares of these companies must be held and transferred in electronic form through Demat accounts.

Amendment: In,2023,The concept of dematerialization has been further democratized, encompassing even private companies within its framework through the recent amendment in Companies Act. This progressive step aims to modernize and streamline the investment landscape for a broader range of businesses. 


  • Every private company which is not a small company.
  • Section 8 Company
  • Private company which is a holding/ subsidiary company.
  • WOS of Private Company
  • Private Company which are WOS of Public Company


  • Government companies
  • Small companies (Paid-up share capital equal to or below Rs.4 crore or such a higher amount specified not exceeding more than Rs.10 crores. Turnover equal to or below Rs.40 crore or such a higher amount specified not exceeding more than Rs.100 crore)


Applicable companies must dematerialize their shares within 18 months from March 31, 2023, or the end of subsequent financial years.

  • Ceased to be small company/ others during F.Y. 2023-24 - by 30th September, 2025
  • Ceased to be small company/ others during F.Y. 2024-25 - by 30th September, 2026


  • Increased transparency and efficiency: Dematerialization reduces paperwork, makes transactions faster, and enhances overall market efficiency.
  • Reduced risk: It eliminates the risk of losing or damaging physical certificates and minimizes the possibility of fraud.
  • Improved corporate governance: Easier tracking of shareholding and better corporate governance practices.

Now, it's important to understand how it works...

The Roadmap to Dematerialization: A Company's Perspective

For companies, dematerialization marks a transformative journey towards efficiency and compliance.Let's explore the roadmap companies follow for the transition from physical to electronic securities.

Obtaining ISIN:

Before initiating dematerialization, companies obtain an International Securities Identification Number (ISIN) for each security.This unique identifier ensures seamless tracking and standardization across depositories.

Surrendering Shares:

Shareholders surrender their physical certificates to the company,signaling their intent to dematerialize.The company cancels these certificates and updates the depository's records, transferring ownership to the depository.

The Shareholders' Journey:

Meanwhile, shareholders begin their dematerialization journey. They select a depository and open an account with a depository participant (DP). By filling out a Dematerialization Request Form (DRF) and submitting their share certificates, shareholders initiate the conversion process.

Processing Dematerialization:

The DP forwards the DRF and certificates to the depository, which, in turn, notifies the issuer or registrar of the dematerialization request. Once verified, the depository credits the shareholders' demat accounts with electronic securities.

Conclusion: Embracing the Future of Finance:

Dematerialization is more than just a technical process; it's a paradigm shift in the world of finance. By eliminating physical barriers and embracing digital innovation, dematerialization paves the way for a more efficient, transparent, and accessible financial ecosystem. Whether you're a seasoned investor or a tech-savvy enthusiast, dematerialization offers a gateway to a future where opportunities abound and barriers dissolve.


Quick Enquiry

First name*

Last name*


Your Location*


Phone number*

Do you want to leave us a message?*

Thank you! Your message has been sent successfully
Error, please retry. Your message has not been sent