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Difference between dematerialisation and rematerialisation

Introduction

You have recently opened a Demat account to purchase securities and monitor your trades. But you've also heard that you can now convert your electronic shares into their physical form through rematerialisation. How does that work, and what is the difference between dematerialisation and rematerialisation? We find out.

What is dematerialisation?

When you trade in securities through your Demat account, you receive shares or debenture certificates in an electronic form that are stores in the Demat account. This process is known as the dematerialisation. The SEBI mandates a Demat account for all investors and traders to conduct trades and invest in shares and other securities. Transacting through a Demat account prevents the risk of forgery and fraud.

What is rematerialisation?

If you wish to convert your shares into a physical form or certificates, you can do so through the rematerialisation process. To do so, you would need to submit the rematerialisation request to the Depositary Participant (DP) with whom you have an account. The DP enters the bid in its system and blocks your holdings to that extent automatically.

Is there a difference between a Demat account and dematerialisation?

A Demat account is compulsory when trading or transacting in securities.

However, dematerialisation is not mandatory. That means you can choose to convert your electronic shares into a physical form. But when it comes to selling them on the stock exchange, you will need to dematerialise them. Similarly, when purchasing shares, you receive them in an electronic form — dematerialised form.

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.

Conclusion

Having a Demat account can facilitate the buying and selling of securities in addition to several benefits. But to become a successful investor or trader, you need to find the right full-service, well-established broker. Their analysis, research and recommendations can go a long way in helping you navigate the stock market smoothly.

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.

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