Deep dive into the key differences between dematerialisation and rematerialisation, and how each affects securities and trading.
Dematerialisation is the process of converting securities that are issued on paper into an electronic or digital format.
Rematerialisation is the process of restoring an investor's dematerialised shares into tangible physical certificates.
A depository participant helps investors and traders initiate and execute dematerialisation or rematerialisation.
Initially, traders were given only physical certificates of share ownership. They had to keep them locked and secure because damage or misplacement could result in a loss of shares for the investor. However, new rules were implemented with the Depositories Act of 1996.
The Act regulates the depositories of securities in India. It implemented the dematerialisation of shares, which made it easy for investors to manage their certificates.
Dematerialisation and rematerialisation are two opposite types of conversion processes. Through this article, we shall discover the difference between dematerialisation vs. rematerialisation and understand their impact on securities and trading.
The process of converting paper-based securities into digital or electronic format is called dematerialisation. Investors can use Demat accounts to hold financial securities in the dematerialised format. The procedure can be initiated through the Dematerialised Request Form (DRF). Here is the step-by-step method to get you started.
Open a Demat account: Investors can open a Demat account with the help of registered depository agents, known as depository participants (DP). They help clients open Demat accounts after effectively processing their documents and registration forms on their behalf.
Dematerialised Request Form (DRF): With the help of a broking firm or DP, investors can fill out the Dematerialised Request Form (DRF) to initiate the process.
Depository participants (DP): The depository participant (DP) receives and begins processing the form as the next step.
Post-processing: The shares are then sent to the depository, and all submitted physical certificates are destroyed.
Verification: The depository notifies the DP when the shares have been successfully dematerialised.
Credit: As the final step, the dematerialised shares are moved to the trader's registered Demat account.
The four parties involved in the above process are as follows.
Depository participants (DP)
The shares issuing party
Depository
Beneficiary or owner
The process of converting dematerialised digital securities into physical paper-based format is called rematerialisation. The conversion can be initiated through the Remat Request Form (RRF) and takes up to 30 days. Here is the step-by-step method to get you started.
Remat Request Form (RRF): With the help of a broking firm or DP, investors can fill out the Remat Request Form or RRF to initiate the process.
Depository Participants (DP): The depository participant begins processing the form as the next step. The DP submits the form to the depository and issuer.
Confirmation: The issuer informs the DP about the successful rematerialisation of the shares, notifies the depository, and prints and dispatches the physical certificates.
Debit: The balance that was blocked is debited from the online account.
Dematerialisation and rematerialisation are two opposite processes of certificate conversion. Here are four key differences between the two methods.
Security: Dematerialisation reduces the chances of theft, fraud, and delayed deliveries of certificates. Rematerialisation requires the holder to be responsible for keeping their securities safe and avoiding any fraud along the way.
Maintenance: Unless the trader has purchased a locker space for their physical certificates, rematerialised copies do not incur any maintenance charges; other costs, such as stamp duty, can be involved. However, an account maintenance charge (AMC) might be levied by stockbrokers for their assistance after dematerialisation.
Convenience: Dematerialisation is convenient, advised, and promoted as it makes the trading experience more transparent, secure, and easy compared to rematerialisation.
Ease of process: Rematerialised securities are bound by physical copies. However, dematerialised digital shares can be traded further via the trader’s registered Demat account.
Dematerialisation has made share management extremely easy and efficient for traders. Here are some key benefits to note.
Easier management
The hassle of managing and securing the physical copies of certificates is eliminated with dematerialisation. Investors can now hold their securities worry-free and manage their online accounts conveniently.
Safety and security
With digital certificates, one does not need to worry about theft or loss of certificates. Digital copies are extremely secure, and dematerialisation eliminates all risks associated with share trading.
Cost-effective and time-saving
Dematerialisation is cost-effective because costs such as stamp duty, locker charges, holding fees, etc., are no longer incurred after conversion. However, the holder might need to pay an account maintenance charge. Digital management is also quicker, and there is no paper waste, which also makes the process environment-friendly.
Cost-effective
Rematerialisation is cost-effective because apart from a conversion fee, there are no significant charges involved in maintaining the physical copies.
No tech issues
Due to tech issues or internet downtimes, a trader might not be able to access their accounts online. In such instances, rematerialised physical securities are safer, as one can access them anytime.
Control over location
With rematerialised securities, traders can control where they wish to keep their certificates. For people who prefer to keep their assets in physical lockers, this might be a preferable option.
It is up to the trader or investor to decide what format of holding securities works best for them. Both dematerialisation and rematerialisation are entirely different methods of maintaining share certificates. The former can be considered more secure and convenient for traders, as digital copies are easier to manage. The latter is risky but allows holders to keep physical copies of their certificates close to them, wherever and however they please.
Rematerialisation is the process of converting dematerialised digital copies of securities into the physical form. This usually takes up to 30 days, during which investors cannot trade.
Yes, through the dematerialisation process, investors may convert their tangible ownership certificates into digital copies. By the process of rematerialisation, they can then reverse and switch back to the paper-based format.
Between dematerialisation and rematerialisation, the former is more secure. This is due to the lack of an obligation to safeguard physical copies against loss, theft, fraud, and other mishaps. An investor may lose all of their shares in such situations.
The process of converting an investor's dematerialised shares into physical copies of certificates again is rematerialisation. The procedure is similar to dematerialisation and can take up to 30 days. Investors need to fill out the Remat Request Form with the help of their broking firm or depository participant to get started. Also, investors are not allowed to trade shares during this period.
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