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 dematerialisation 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 occasionally misplace a share certificate. 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. If, for some reason, you want to hold shares in a physical format once again, rematerialisation has to take place. Therefore, you should know the difference between dematerialisation and rematerialisation.

Dematerialisation is the process by which physical debentures 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 is 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, and theft, are eliminated when you have a dematerialised account. You can also hold other securities, such as mutual funds, bonds, and exchange-traded funds, in a dematerialised format. There is a certain maintenance cost that is applicable to the dematerialised holding of your shares. Refunds, dividends, and interest are all credited directly to your Demat account.

Difference between Dematerialisation and Rematerialisation

On the other hand, rematerialisation is the process whereby an investor who has converted shares or securities into 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 out 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 convert 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 out and submitted to the DP, the first thing the DP has to do is 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 up 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 the average investor has greater confidence in transacting the Demat way, which is paperless and seamless. The remat method 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, this may be an easier way to open a trading account and begin your journey into the markets.

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