Shares and securities are held in dematerialised form in demat account.

It is mandatory to have a demat account

to carry out a transaction in stock exchange. Once an account is opened, you can buy shares by visiting a
broker personally or online.
Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent
number of securities in an electronic form and are credited into the beneficiarys account with his DP.

Procedure for converting the physical shares into electronic form.

To convert the shares into electronic form the investor should open an account with any
of the depository participants. For opening an account the investor has to fill up the
account opening form. An account number (client ID) will be allotted after signing the
agreement which defines the rights and duties of the DP and the investor wishing to
open the account. The client ID along with the DP ID gives a unique identification in the
depository system. Any number of depository accounts can be opened.
After opening an account with the DP the investor should surrender the physical
certificates held in his name to a depository participant. These certificates will be sent to
the respective companies where they will be cancelled after dematerialization and will
credit the investors account with the DP. The securities on dematerialisation will appear
as balances in the depository account. These balances can be transferred like the shares
held in physical form. Dematerialised shares are in the fungible form and do not have
any distinctive or certificate numbers .The securities in the demat can again be
converted into physical form which is called as rematerialisation.

The process flow is enumerated below: Investor is required to have an account with a Depository Participant (DP)
and a unique Client ID ( provided by the DP on opening an account)
A Dematerialisation Request Form (DRF) is required to be completed and
the physical shares intended to be dematerialised have to be surrendered
to the DP
On receipt of the shares and the DRF, the DP will send an electronic
request through the Depository to the company for confirmation of
dematerialisation. Each request will bear a unique transaction number.
DP will surrender the DRF and the shares to the company with a covering
letter requesting the company to confirm the dematerialisation. After
verifying the documents received from the DP, the company will confirm
the dematerialisation to the Depository.
This confirmation will be passed on from the Depository to the DP. After
receiving confirmation from the Depository, the DP will credit the account
of the investor with the dematerialised shares.
The DP will then hold the shares in the dematerialised form on behalf of the
investor and the investor will become the beneficial owner of these
dematerialised shares.