Difference Between Dematerialisation and Rematerialisation of Shares | Motilal Oswal

Difference Between Dematerialisation And Rematerialisation




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The word Demat is familiar to anyone who has even a basic interest in the financial markets. However, have you wondered what it actually stands for? Demat is short for a dematerialised account and comes from the concept of dematerialisation. Another commonly used word is rematerialisation, also used in the context of the markets. So, what do the two words mean, and what are the differences between the two?

Why is it important to distinguish between dematerialization and rematerialisation

In previous times, before most financial (rather, all by now) services went online, investors held stocks and shares of a company in the form of paper certificates. These physical holdings were prone to wear and tear and even loss. Several senior citizens and other investor groups would misplace a share certificate here or there. Duplicate share certificates were hard to come by, with tedious paperwork involved. With dematerialisation, investors could convert their physically held certificates into electronic formats. This is, for all purposes, a safer way to hold securities, especially if you hold a significant amount. In case, for some reason, you want to hold shares in a physical format once more, rematerialisation has to take place. Therefore, you should know the difference between dematerialisation and rematerialisation. 

Dematerialisation is the process wherein physical debenture, and share certificates are converted into electronic versions. This lowers the risk that comes with holding shares or debentures in a physical form. The electronic format of your shares are stored with depositories like the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd (CDSL).

The advantage that comes with dematerialisation is that it ensures speedy and seamless transactions. You can carry out any transaction on your smart devices, including your smartphone. You don’t have to make a physical visit to the broker for any transaction. Also, the risks associated with physical holding, including forgery, damage or theft, are eliminated when you have a dematerialised account. You can also hold other securities such as mutual funds investment, bonds and exchange-traded funds in a dematerialised format. There is a certain maintenance cost that is applicable for the dematerialised holding of your shares. Any benefits such as refunds, dividends or interest are credited into your Demat account directly.

Difference between Dematerialisation and Rematerialisation

On the other hand, rematerialisation is the process whereby an investor who has converted shares or securities in a digital or e-format now wants to convert those shares into a physical format. The process is the reverse of dematerialisation. The main difference between dematerialisation and rematerialisation is that Demat shares are paperless while remat shares involve physical holding of shares.

In order to get electronically held shares and securities back into a physical format, the investor would need to fill a remat request form and also make a personal visit to the DP or depository participant. While dematerialised shares don’t have a specific number for identification, rematerialised shares have a distinctive number.

Is there a dedicated process for rematerialisation?

There is a clear procedure when you want to change your digitally held shares into physical form. An RRF (rematerialisation request form) has to be carefully filled out. This cannot be done online and has to be done at your depository participant. This form is an official request made to the DP in question to change any balance of securities in the Demat account into physical certificates. When such a form is filled and submitted to the DP, the first thing the DP has to do is to inform the depository concerned about the request. This is done online. In turn, the depository confirms the request to the Registrar. The Registrar is the body that finalises the process and prints physical share certificates or any other securities. The depository makes the relevant updates in the system, and physical certificates are sent to the shareholder by the Registrar. 

Once shares have been rematerialized, all the transactions pertaining to shares will occur physically. There are no maintenance charges for physical certificates, but the process is time-consuming, and there is always the risk of fraud, damage or theft when you hold share certificates physically. The responsibility of maintaining physical shares lies with the company and not the depository participant or DP.

Clearly, dematerialization has many benefits for an investor. The simplified online process encourages more people to take up trading or investing as they can do so on the go. On the other hand, rematerialisation can be long-drawn and time-consuming. Investors who wish to avoid maintenance charges may take to rematerialization.

Conclusion

An investor has the option of both dematerialized and rematerialized methods of holding shares, but the number of Demat accounts has been on the rise simply because they are easier to handle and an average investor has greater confidence to transact the Demat way, which is paperless and seamless. The remat way may require physical visits and safeguarding share certificates carefully. If you are a beginner who wishes to take up trading, it may be an easier way to open a trading account and begin your journey into the markets. Since online modes are easier to handle in the operation of many aspects of financial life, like even bank account transfers, rematerialization has limited benefits for investors, if any benefits at all. Besides this, reputed brokerages offer many advantages to those who trade and invest online. re physical visits and safeguarding share certificates carefully. If you are a beginner who wishes to take up trading, it may be an easier way to open trading account and begin your journey into the markets.

Related Articles: All You Need To Know About Dematerialization Of Shares | Benefits And Advantages of Dematerialisation of Shares | Want to Open a Demat Account? Here's What You Should Know | Procedure of Buying and Selling Shares Through Demat Account | Importance of Monitoring your Demat Holdings Account

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