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Difference between Dematerialisation and Rematerialisation

15 Jul 2021 0 COMMENT

When investing in the Indian financial market, you need to know words like 'dematerialisation' and 'rematerialisation'. They are critical processes that enable you to manage your investments without effort, making your shares and securities readily available. However, it's easy to confuse the meaning and functioning of these two terms. Our detailed guide will help you understand both processes better and talk about buying and selling dematerialised securities.

What is Dematerialisation?

Dematerialisation is transforming a physical share or security into an electronic form. Before the Depositories Act of 1996, investors were expected to maintain physical copies of their investments, leaving the documents susceptible to wear and tear over time. However, you can now hold all your shares and securities in an electronic format, making them easier to maintain and transact.

What is Rematerialisation?

As the term suggests, rematerialisation is the reversal of the dematerialisation process. Investors who have converted their debenture certificates and securities into an electronic format can choose to return them to their physical forms again. Some people decide to rematerialise their shares to evade the maintenance cost of a Demat account. However, it's worth noting that once you rematerialise the securities, all transactions will take place only in a physical format.

Additional Read: How to Convert Physical Shares into Demat?

Is there a difference between a Demat account and dematerialisation?

Yes, the difference is that dematerialisation is the process through which your investments are converted to an electronic format. In contrast, Demat is a type of account you need to open to make that happen. These days, it has become increasingly easy to have a Demat account and start investing in the financial market.

The below table highlights the key differences between dematerialisation and rematerialisation.

Differential Factors

Dematerialisation

Rematerialisation

Definition

Physical shares are converted into the electronic format

Electronic shares are converted to the physical form

Cost of maintenance

Annual maintenance costs and other transaction fees are applicable as specified by the broker

Physical certificates do not require maintenance charges

Disadvantages

No threats to shares held in the electronic form

High chance of theft, misplacement, fraud and forgery

Identification attributes

Shares held in the dematerialised form do not have a distinct number

Physical shares hold distinct numbers issued by the RTA

Transaction approach

All transactions take place electronically

Post rematerialisation, transactions take place physically

Maintained by

NSDL or CDSL — depository participants — maintain the account

The company maintains the account

Challenges

Dematerialisation is a simple and easy process; mandatory when trading in shares.

Rematerialisation a complex procedure and takes an extended period of time. The process is typically a long drawn and requires expert assistance.

Application form used

Investor needs to fill out the Dematerialisation Request Form [DRF]

Investor needs to fill out the Rematerialisation Request Form [RRF]

Sequence

It is the principal and primary function of the depository, and is an initial process.

It is a secondary and supporting function of the depository and a reversal procedure.

Dematerialisation of Shares and Securities: A Detailed Guide

  • Start by opening a Demat account through your preferred depository participant (DP).
  • Duly fill and submit the Dematerialisation Request Form (DRF) to the DP along with the physical share certificates. Please note that if you're converting shares of more than one company, you will need to submit a DRF for each of them.
  • The DP will then review your application and make sure all the formalities are completed without errors. While they process your request, you'll be given a Dematerialisation Request Number (DRN) to help you keep track of the application.
  • Your request will be transferred to the Registrar and Transfer Agent of the company whose shares you're holding, who will then convert your physical certificates into an electronic form. That also involves destroying the physical document after conversion.
  • The dematerialised shares will be transferred to your Demat account. The above process may take about 2 to 3 weeks.

Rematerialisation of Shares and Securities: A Detailed Guide

  • Contact your DP and provide them with a duly filled Rematerialisation Request Form (RRF).
  • The DP will forward your request to the depository and share issuer while blocking your account temporarily.
  • Once the request is successfully verified and processed, you will receive your physical certificates at your preferred address.
  • The blocked balance in your account will be debited, marking the completion of the process in up to 30 days.

Know how to Buy/Sell Dematerialised Securities

  • Open a Demat account with your chosen DP.
  • Search for the stock on the platform your broker has provided.
  • Place an order to either buy or sell.
  • If you're buying, the broker will receive the purchased securities in their account on the same day. They will then request the DP credit the investor's account with the shares.
  • Your account will be debited, and the broker's account credited if you're selling.

Conclusion

Dematerialisation has made it much safer to make transactions, allowing more and more people to start investing. Be sure to find a reputed broker who helps you understand the nitty-gritties of the market while trading.

FAQs:

   1. What does it mean by rematerialisation of shares?

Rematerialisation is the process of changing dematerialised securities and share certificates from an electronic to physical format.

   2. What is the dematerialisation process?

  • Open a Demat account.
  • Submit the Dematerialisation Request Form (DRF) along with physical certificates to the DP.
  • Your request will be reviewed and transferred to the share issuer. If everything is in order, your physical shares will be converted to an electronic form within 2 to 3 weeks and sent to your Demat account within 2 to 3 weeks.

   3. What are the advantages of dematerialisation?

  • Lower risk of fraud, forgery, and damage to your shares and securities
  • Quick and instant transfer of securities from one account to another
  • Makes trading more convenient, allowing new investors and traders to join in
  • Lower cost of transactions as no stamp duty is required

Disclaimer : ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose.