What is Dematerialization?
In this article, we will discuss Dematerialization and Rematerialization. But before let’s explain Dematerialization. Dematerialization means converting/ conversion of the physical share or debenture certificate to an electronic form. This helps the investor maintain the share and securities in a more convenient and time-saving manner.
- Dematerialization of shares reduces the risk of theft, fraud, and forgery.
- Electronic Records after Dematerialization are stored at depositories like National Security Depository Limited (NSDL) and Central Depository Service Limited (CDSL).
Process of Dematerialization :
The Companies issuing shares:
To deal with Dematerialization share, a company that allows issuing Dematerialization of share have to revise its Article of Association, Regulation for company operation. The company has to register with a depository after the revision of the Regulation.
Currently, there are two Depositories in India: National Security Depository Limited (NSDL) and Central Depository Security Limited (CDSL). To identify each share and security, the depositories provide companies a unique 12 digit International Security Identification number. The Registrar and Transfer Agent intermediate the dealing between the company and Depository.
Owner or Beneficiary :
Any New or Old Investor must have a ‘Best Demat Account‘ under the Current Rules and Regulations. Investors’ actions are recorded in the registered Account, such as buying and selling exchange-traded funds (ETFs), Mutual Funds, stock, and bonds. An investor can not directly register for an account, and Depository Participant or Brokers do Registration for Demat Account on behalf of their customer (shareowner).
Depository Participant (DP)
DP is the registered agent of Depositories. DP does all the formalities related to opening demat Accounts for an investor, such as Registration of form and document.
Steps for Dematerialization :
Step 1: The investor opens his Demat Account with the Help of DP.
Step 2: With the Dematerialization Request form investor will submit the physical Certificate.
Step 3: After these steps, DP further processes the Request form.
Step 4: After processing the Request, the share send to the Depository, and all the physical certificates get destroyed.
Step 5: Confirmation of Dematerialization of share by Depository to the Depository Participant.
Step 6: After confirmation, the converted shares are credited to the registered Demat Account.
What is Rematerialization?
It is the opposite of Dematerialization; the investor who converted the securities and Debenture to electronic or digital form can convert them to a physical certificate or paper form.
- The investor has to submit a request as Re-mat Request Form (RRF) for Rematerialization to the Depository Participant (DP); the holdings are converted from electronic to physical Certificate after this entire process.
- Rematerialization may take 30 days to complete.
Process of Rematerialization :
As same as the process of Dematerialization, with the DP, the investor needs to fill out a Remat Request Form (RRF). The investor can not trade their shares during the process of Rematerialization. There are a few steps required for Rematerlisation; the following are the steps for Rematerialization:
Step 1: The investor reaches or contacts their respective DP.
Step 2: The DP gives the investor a Remat Request Form (RRF).
Step 3: Depository Participant submits the Filled RRF form to the Depository and the share issuer temporarily blocks the investor’s Account.
Step 4: Successfully processing the Request, the share issuer, after confirming with the Depository, the issuer print the physical Certificate and dispatch the physical Certificate.
Step 5: The block balance is debited to the Account.
Process Duration of Dematerialization and Rematerialization :
The entire process for both Demat and Remat takes upto 30 days from the time of submission of the Request to the processing of the Request.
Comparison of Dematerialization and Rematerialization
|Definition||The conversion of physical Certificate of shares & Debenture to electronic/ digital form||The conversion of Electronic/ digital form of shares & Debenture to physical Certificate.|
|Maintenance Cost||The charge for Maintenance varies between Rs. 200 to Rs.999.||A maintenance charge is not necessary for a physical share certificate.|
|Account of shares||In Dematerialization of shares, the shares that are in electronic form are maintained in the demat account by Depository Participant.||In the Rematerialization of share, the physical form of the share in account is maintained by the company.|
|Conversion||The shares are converted from physical form to Electronic form.||The shares are converted from electronic form to physical form.|
|Identification of share||Dematerialization of share does not have distinct no’s.||Rematerialization has a distinct number issued by RTA.|
|Account maintenance Authority||The charge of account maintenance is the DP ( NSDL or CDSL)||The company is in charge of account maintenance.|
|Security||Threats are low in electronic form.||The threats are higher in physical shares such as fraud, and theft.|
In conclusion, it defines the meaning of Dematerialization and Rematerialization; in Dematerialization, it converts the physical share or debenture certificate into electronic form. Rematerialization is just the opposite of Dematerialization; in Rematerialization, it converts the electronic shares or Debenture into physical form. It also defines the process and steps needed for covert Dematerialization and Rematerialization. The difference between the Dematerialization and Rematerialization by its account share is also given with meaning, conversion, security, and many more. I hope all your question regarding the difference between Dematerialization and Rematerialization has been Answered.