The Impact of Dematerialization on Financial Markets: Benefits and Challenges

Basic dematerialisation essentially refers to converting physical assets or securities to electronic form. Thanks to the impact that the digital space has had on every aspect of our lives, the process of dematerialization has become convenient leading to better navigation through the stock market. Investors do not need to deal with cumbersome physical certificates anymore. 

Here, we have a look at the basic dematerialization meaning and the impact it has had on the financial markets in terms of benefits and challenges. 

What is Dematerialization

Dematerialization meaning shares is the process by which paper-based share certificates are converted into electronic holdings in an investor’s Demat account. 

Once the dematerialization process is complete, the original paper share certificates are converted to e-certificates so that the trading process becomes easier for investors on the stock market. 

Companies can now only issue shares in dematerialized format to buyers, as mandated by the Securities and Exchange Board of India or SEBI. Dematerialization of shares has enabled better bookkeeping facilities, thus ensuring that a Demat account provides high-end security to its investors while offering convenience. 

Impact on the Financial Markets

The dematerialization process has had a huge impact on the financial markets in terms of the benefits it offers and the few challenges that come with it. Here is a look at some of these.

Benefits of Dematerialization

1. Easy management

After the dematerialization process, investors will notice that managing and trading shares with electronic certificates is extremely convenient when compared to physical share certificates. 

With shares being dematerialized, investors end up saving time, money, and effort effectively. All an investor needs to access these electronic shares is a smartphone, computer or laptop and they can trade from anywhere they like.

 Dematerialization makes the entire process of moving shares in and out of the Demat account extremely easy and hassle-free.

2. Economical and environment-friendly

With the process of dematerialization, investors can also experience a more economical way of trading. This is because investors can avoid a lot of unnecessary expenses like stamp duty charges that usually accompany physical share certificates. 

Charges like the holding charges for shares in an open Demat account are also very nominal, so investors do not have to shell out a lot on that front either. 

Other than this, because physical share certificates are not being used, the chances of paper being unnecessarily wasted also go down, thus making it quite an environment-friendly provision. 

3. Safety

Since the process of dematerialization helps investors hold shares in electronic form, it also eliminates many risks that can usually be associated with physical share certificates. This includes safety risks like theft, forgery, or identity impersonation. None of these issues will arise in the dematerialized format.  

Challenges Of Dematerialization

While on the one hand, there are plenty of benefits that accompany the dematerialization of shares for investors, there are a few challenges that they might face with the process. Some of these challenges include:

1. There is no doubt that the process of dematerialization has made trading easier and offers more liquidity. However, this liquidity is also accompanied by high volatility in the financial market. 
2. For anyone who has little to no knowledge of electronic gadgets, or does not have access to them, dematerialization might just leave them feeling confused.

Conclusion

The share market is one of the safest methods to invest for both long-term and short-term gains.  At the very base level itself, the market offers high-end security to its investors as well. 

To top this off, the process of dematerialization of securities has added an extra layer of safety to the trading experience for investors. Dematerialization has also simplified the whole trading experience with fewer complications and less paperwork. 

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