Ever since the introduction of demat accounts and electronic share trading in India, the possession of physical share certificates has been declining steadily. In fact, the Securities and Exchange Board of India (SEBI) has mandated that companies issue shares only in the dematerialized form and not as physical share certificates.
The process by which the physical share certificates of a company are converted to an electronic form is what is commonly known as “dematerialization of shares”. These dematerialized shares are then held in an online demat account that you open with a depository. In the current context of stock trading, share dematerialization is mandatory in order to be able to sell or transfer your shares to another account.