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?
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 career 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.
On the other hand, rematerialisation is the process wherein 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.
Once shares have been rematerialised, 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, dematerialisation 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 rematerialisation.
An investor has the option of both dematerialised and rematerialised 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 trading account and begin your journey into the markets.
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