Which of the following statements about dematerialisation is correct?

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → SEBI has made demat settlement mandatory in certain select securities.

Option (1) SEBI has made demat settlement mandatory in certain select securities. — Correct. SEBI has made it mandatory for settlement to take place in demat form in certain select securities.

Option (2) Demat securities have to be rematerialised before they can be pledged to get loans. — Incorrect. Demat securities can be pledged or hypothecated to get loans as they are. No rematerialisation is needed.

Option (3) In the demat system, the depository has to credit the investor’s account with the correct number of shares. — Incorrect. Crediting the investor’s account with the correct number of shares is the broker’s responsibility.

Option (4) Dematerialisation means reconverting electronic holdings into physical certificates. — Incorrect. Reconverting electronic holdings into physical certificates is rematerialisation. Dematerialisation turns physical certificates into electronic form.

NCERT (Pre-rationalised Edition): “Dematerialisation and Depositories … The Securities and Exchange Board of India (SEBI) has made it mandatory for the settlement procedures to take place in demat form in certain select securities. Holding shares in demat form is very convenient as it is just like a bank account. Physical shares can be converted into electronic form or electronic holdings can be reconverted into physical certificates (rematerialisation). Dematerialisation enables shares to be transferred to some other account just like cash and ensures settlement of all trades through a single account in shares. These demat securities can even be pledged or hypothecated to get loans. There is no danger of loss, theft or forgery of share certificates. It is the broker’s responsibility to credit the investor’s account with the correct number of shares. …”