In the Indian financial markets today, the words, ‘dematerialisation’ and ‘rematerialisation’ are the most frequently heard words. If you are among the many individuals who are prone to investing in Indian stock markets, you have to have been accustomed to hearing about, and speaking about, these two common words. They are of paramount importance, and the process of dematerialisation has been of landmark relevance in the Indian financial realm. If you are unsure about what these words mean, you should be enlightened as, when you enter the investment scenario in India, you should be knowledgeable about them.
You must have come across Demat accounts in your experience as an investor, and even if you are not into investing, these terms are well known. The dematerialisation process has revolutionised the way we view stocks, and the purpose of how we hold them. Plainly put, dematerialisation is the way of converting physical shares (in the form of share certificates made of paper) into formats that are of an electronic nature. Not just share certificates can be converted into electronic formats, but debenture certificates can be transformed too.
As you can see, the advantage of dematerialisation is clear. However, if you wish to still know the benefits, the first one is that it makes the process of holding stocks much easier than in paper form. Dematerialisation lowers several risks tied to the physical use and storage of shares. Additionally, shares are stored in a demat account that is located with a depository participant (DP), which is either a bank or a finance company that is officially licensed to become a depository participant and hold shares on your behalf. There are two main depositories in India, and these are the NSDL, or National Securities Depository Limited, and the CDSL, or the Central Depository Services Limited.
When you set out to make investment in equities, it is mandatory to open Demat accounts to hold your securities in a Demat format. However, if you want to convert your shares in a Demat account back into a physical format, you can do this and this is known as rematerialisation. Why opt for this, when dematerialisation is a more rational way to hold shares? People often opt for rematerialisation as the charges for maintenance of Demat accounts can be high. Furthermore, if you are not investing in a lot of securities and holding much, your Demat account may not be used, yet you may still be paying for its maintenance. In such cases, you may opt for rematerialisation. The first thing you have to do to turn your securities back to rematerialised form is to request your DP to give you a Remat Request Form. You should fill this out and hand it over for processing to your DP.
It is mandatory to hold a Demat account if you wish to trade and hold securities. Hence, if you wish to avoid hefty charges levied on you and hold only a few securities, you may still need to keep your Demat account open. The other solution is to disinvest and not hold a Demat account at all, given that you may not be a serious enough investor. However, you should give investment in stocks a serious thought as this is a good way to allocate your funds. If you wish to diversify your portfolio and gain good returns on investment, you should open a Demat account free of charge with a premium broker like Motilal Oswal and get maximal benefits for your financial goals.
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