Dematerialization is the process by which physical share certificates of an investor are taken back by the company/registrar and destroyed. Then an equivalent number of securities in the electronic form are credited to the investors account with his Depository Participant.
Dematerialization is done at the request of the investor. Investors will first have to open an account with a DP (Depository Participant) and then request for dematerialization of certificates through the DP.
Purchases made by an investor are credited to his account and sales are debited. The securities held in dematerialized form are fungible. In other words they do not have any distinguishing features. Dematerialized shares do not have any distinctive numbers. All the holdings of a particular security will be identical and interchangeable.
Trading in dematerialized shares commenced on the NSE in December 1996 where Reliance Industries was the first company to trade its 100 shares in demat form. In case of the BSE, dematerialization of shares commenced in the year December 1997.