Not very long ago, the default mode of stock trading was by exchanging physical share certificates. While this was mainly due to lack of technological advancement, it resulted in a lot of paperwork for investors, along with the risk of dealing in stocks through physical copies.
With time, however, the trading world saw a new alternative to physical share certificates. As securities started being stored in digital formats, it offered immense convenience, lower risks, and easier stock trading. It is important to note, however, that many investors/traders prefer to convert their electronically held securities into physical formats. While the process of converting physical shares into digital copies is called dematerialisation, the conversion of stocks back into physical format is called rematerialization.
For the benefit of new investors, here, we will explain the difference between the dematerialisation and rematerialization processes.
What is Dematerialisation?
Dematerialisation is:
- a process in which physical share certificates, and debentures are converted into electronic format.
- a process that gives rise to ‘demat’ accounts.
A demat account is used by an investor/trader to hold dematerialised securities.
What is the dematerialization process?
To convert physical securities into dematerialized form, an investor has to submit a Dematerialization Request Form (DRF). Here is how the process works:
- The first step is to reach out to a Depository Participant (DP) that offers DEMAT Services.
- An investor/trader must fill out the Dematerialisation Request Form (DRF) before submitting it with the share or debenture certificates.
- Post this, each certificate will be mentioned with “Surrendered For Dematerialisation”.
- The Depository Participant (DP) will then pass on the request along with the security certificates to the Depository, Registrar, and Transfer Agent.
- The registrar will then inform the depository about the process status and the investor’s account will reflect the credit certificates upon confirmation.
- Once generated, The Demat account number and ID help users to access the account online.
- The entire process of dematerialisation set-up and activation usually takes around 15 to 20 days.
Did you know?
The authorized depositories in India are:
- National Securities Depository Limited (NSDL) and
- Central Depository Services Limited (CDSL)
How to sell and buy dematerialised securities?
To buy and sell dematerialized securities, one needs to open a Demat account with a Depository Participant (DP) and link it to the trading account. The account holder can then place an order to buy shares online through a broker, who will confirm the order with the stock exchange. Once the order is executed, the shares are credited to the Demat account of the individual, which can be used to track the performance of the investments.
To sell shares held in a Demat account, one needs to place a sell order through the broker, who will confirm the order with the stock exchange. The shares will be debited from the Demat account and sold on the stock exchange. After the sale is executed, the proceeds from the sale will be credited to the linked bank account or the trading account for future investments.
What is rematerialization ?
Rematerialisation process involves:
- conversion of digitally held securities into physical certificates.
- investors requesting for their securities to be released from demat accounts to physical formats.
While investors can choose rematerialization of securities, they must remember that, once converted, these cannot be traded on relevant stock exchanges.
What is the rematerialization process?
Here are some of the steps involved in this process:
- To request for rematerialization, an investor/trader must submit the REMAT Request Form (RRF) to the Depository Participant (DP).
- The DP then approaches the depository to further forward the form with the request to the Registrar.
- The forms are furnished to the Registrar for further verification who prints new physical certificates for the investor to Rematerialise the share or securities.
- Upon confirmation of Remat from the Registrar to the Depository Participant (DP), the investor will receive the new physical certificates.
- The Rematerialization process generally takes 20 to 30 days.
What are the differences between dematerialisation and rematerialisation?
The table below presents the main differences between dematerialisation and rematerialization”
| Dematerialisation | Rematerialisation | |
| Meaning | Through this process, physical securities are converted to digital format. | Through this process, digitally held securities are converted back into physical format. |
| Maintenance cost | Demat accounts attract:annual maintenance charges other transaction fees depending on broker | Physical security certificates do not attract any maintenance charges. |
| Drawbacks/Risk | No risk of securities being misplaced since these are in digital form. | High risk of fraud, theft, misplacement, and also forgery due to physical form. |
| Unique identity | Securities that are held in Demat accounts do not have a distinct or unique identification number. However, the Demat account itself will have a unique ID attached. | Physical securities come with a distinct identification number that is issued by the RTA. This helps in ease of reference and tracing. |
| Transaction mode | All transactions are done electronically. | Transactions can only be done physically. |
| Account maintenance | Depository participants like NSDL or CDSL are responsible for maintaining the account. | Company to which the security belongs helps in maintaining the account. |
| Ease of execution | Dematerialisation involves simple and easy steps and is mandatory to trade in shares. | Rematerialisation can be a complex process involving a lot of time and often requiring expert guidance. |
Conclusion
Dematerialisation and rematerialization are opposite, since the former involves conversion of securities from physical to digital form while the latter helps convert securities back to physical certificates. Thus, they are entirely different and it is up to the trader or investor to decide whether to opt for either of these formats of holding securities. Most investors, however, opt for convenience and, therefore, prefer dematerialised securities.
FAQs
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.
You can open a Demat account by downloading the Fisdom app. The app allows a seamless process of setting up a trading and Demat account after completing the KYC process.
Rematerialization is the process of converting digitally held securities into physical form. Once converted into physical format, investors may carry the risk of loss, theft, forgery, or fraud in relation to these securities.
Yes, you can open multiple Demat accounts since there is no limitation on the number of such accounts that can be opened under a single name.
Yes, you can request for closure of Demat account whenever you like and after transferring all the securities held in it to another Demat account.
