Dematerialisation and Rematerialisation: Know Their Differences

Stock investments are a popular option for investors looking to play the market. Prior to digitisation, physical certificates were exchanged but things have changed since. Today, you can trade stock digitally without a physical certificate. 

 

How? Through dematerialisation of shares. Digitisation of these securities resulted in reduced risk for investors and simpler trading of stocks. This does not mean that you cannot convert your digitally held shares and other securities into physical forms. 

 

This is possible as well, and the process is known as rematerialisation of shares. It is available for investors across the country. However, choosing between the two requires you to understand the difference between them.

 

Read on to learn about the difference between dematerialisation and rematerialisation.

Understanding how dematerialisation and rematerialisation is different can help you make an informed decision about how you want to hold your securities. 

 

Here are important points of difference between rematerialisation and dematerialisation.

• Meaning

Dematerialisation of securities means that your securities are stored in a digital form in a demat account. On the other hand, rematerialised securities are when they are converted from their digital form into physical certificates. 

 

As per rules, all securities are to be issued in dematerialised form only and the investor can later convert into rematerialised form.

• Risks

Since the securities are stored digitally, the risk of loss to misplacement, theft, or damage is virtually nil. For rematerialised securities, however, the risk is high as they are in physical form and vulnerable to not only misplacement, damage, and theft, but also forgery.

• Costs

Digital (dematerialised) securities are stored in a demat account that are managed by a DP. To maintain the demat account, the DP generally levies a maintenance charge. However, rematerialised shares and securities are in physical form and do not require any account, therefore attract no maintenance charges.

• Impact on Trading

When you have dematerialised securities, you have a demat account through which you can trade. Since you can manage a demat account online, you can essentially trade from anywhere, at any time. 

 

In rematerialised securities, you have physical certificates. This limits your trading scope as you can trade securities in rematerialised form only by visiting the required location.

• Authority

Depository participants (NSDL or CDSL) maintain your demat account and your dematerialised securities. In case of rematerialisation, the company with which you invest helps maintain your securities.

• Process

The process of getting your securities converted into dematerialised form is relatively simple, easy, and quicker. Rematerialisation of shares, however, is a tedious and lengthy process that can take up to 30 days. 

 

To begin the dematerialisation process you will have to submit DRF and for rematerialisation you will have to submit RRF.

Traditionally, investors received the physical certificates for their securities and loss of this certificate would result in monetary loss. With the Depositors Act, 1996, every unlisted company now has to issue securities in dematerialised form only. 

 

Dematerialisation is the process of converting your physically stored securities into a digital format. This reduces and eliminates the risk associated with rematerialised securities. All your dematerialised securities are stored in demat accounts that you can open with financial institutions.

 

You can convert your rematerialised shares into dematerialised shares by submitting a DRF (Dematerialisation Request Form) to a Depository Participant (DP). With the form, you will have to submit the certificates.

 

Be sure to mention the following on every certificate ‘Surrendered For Dematerialisation’. 

Traditionally, when an investor purchased shares or other securities, they would receive physical certificates as proof of ownership. However, dematerialisation has become increasingly prevalent as it offers several advantages. These include:

 

• Elimination of physical paperwork

• Enhanced accessibility and liquidity

• Cost and time savings

• Increased transparency and efficiency

   

Dematerialization typically involves a process facilitated by central securities depositories (CSDs) or similar financial institutions.Investors open demat accounts with these institutions, and their physical securities are converted into electronic form, credited to their accounts. Transactions and transfers are then executed electronically, and the ownership of securities is reflected in the account balances.

 

It's important to note that dematerialization varies from country to country, and specific regulations and procedures may differ accordingly. Investors should consult local financial authorities or their respective brokerage firms for detailed information on the dematerialization process in their jurisdiction.

Rematerialisation is the process of converting your digitally stored securities into physical forms. As mentioned above, previously securities were issued in physical form only but now are issued in a digital form.

 

However, you still have the option to convert your digital securities into physical form. Some investors prefer rematerialisation of shares to avoid the fees and charges generally associated with digital securities. 

 

Depository Participants (DP), generally levy a maintenance charge on the demat account that stores your digital securities. It is important to note that rematerialisation helps you save on these charges, it also exposes you to the risk of loss due to theft, fraud, or damage

 

Moreover, the process of rematerialisation of shares and securities can take longer than that of dematerialisation. You can begin the rematerialisation process by submitting a Remat Request Form (RRF) to the DP. 

 

Once all the formalities are complete, it can take up to 30 days for rematerialisation to complete.

The rematerialisation process usually involves the following steps:

 

• Request for rematerialisation

• Verification and compliance

• Securities immobilisation

• Submission of request to issuer

• Printing and issuance of physical certificates

• Delivery to investor

   

It's important to note that the rematerialisation process and the availability of physical certificates may vary between jurisdictions and depending on the specific regulations. Also, the practices of the respective country's securities market. Investors should consult with their local financial authorities or brokerage firms for detailed information on the rematerialisation process in their region.