The Securities and Exchange Board of India (SEBI) has recently mandated that investors dematerialise their physical shares. As of now, this regulatory authority allows investors to rematerialise their shares held in electronic form.
If you are beginning to trade in exchange markets, you need to be aware of the terms: dematerialisation and rematerialisation. So, read on to know more about these processes and their differences.
What is Dematerialisation?
As a new investor in the trading landscape, you need to be aware of the difference between dematerialisation and rematerialisation, as that helps you manage a hassle-free trading process.
In simple words, dematerialisation means converting your physical shares into electronic form. You can invest in dematerialised shares by opening a Demat account.
A depository is a financial entity that maintains records of ownership of your securities. To dematerialise your securities, you need to follow these simple steps:
- Step 1: Open a Demat account with a depository participant (DP)
- Step 2: Surrender your physical shares by submitting a Dematerialisation Request Form (DRF)
- Your DP will send the dematerialisation request to the depository
- Your physical shares will be destroyed
- The electronic shares will be added to your Demat account
Another essential point is that when submitting your physical share certificates for dematerialisation, you must add ‘Surrendered for Dematerialisation’ on each certificate. That’s all it takes to convert your physical documents into electronic formats.
Here are some documents you must submit when opting for dematerialisation:
- DRF
- Physical copy of your share certificate
- KYC documents
- Power of Attorney allowing DP to initiate the conversion on your behalf
Remember that you are not allowed to trade individually on the stock exchange and require a depository participant to help you with your trading journey. Hence, choosing the right DP is crucial for a smooth and easy trading experience.
However, the processing time and other factors vary from one DP to another. Even account maintenance and transaction charges vary across DPs. Hence, evaluate all these criteria carefully before you select a specific depository participant.
What is Rematerialisation?
Rematerialisation is the process by which you can convert your electronic shares into a physical form. However, note that you cannot trade in shares during the process of rematerialisation.
To convert your shares into physical form, here is the process that you need to follow:
- Contact your Depository Participant (DP)
- Fill out and submit Remat Request Form (RRF)
- Your DP will then send your rematerialisation request to the depository
- The share issuer then provides a physical certificate of your shareholding and dispatches it to the depository participant
- You can get the physical certificate of your shares from your DP
Once you complete the required formalities, it may take up to 30 days to get back your physical shares. When you opt for rematerialisation, you can avoid fees associated with digital securities.
Submit the following documents to convert your electronic shares to a physical format:
- KYC documents
- Completed RRF
- PAN copy
- Nomination form
While rematerialisation can help you save on charges, remember that the risk of damage or theft is high in this scenario. Assess all these factors carefully before opting for rematerialisation.
Difference Between Dematerialisation and Rematerialisation
The following table shows the difference between dematerialisation and rematerialisation:
| Basics | Dematerialisation | Rematerialisation |
| Meaning | It is the process of converting physical shares into electronic form. | Rematerialisation is the process of converting your dematerialised shares into physical certificates. |
| Conversion Time | The dematerialisation process is easy and quick. | The rematerialisation process takes more time as compared to dematerialisation. |
| Account Maintenance | The Depository Participant (DP) maintains records of your shareholdings. | The share issuer maintains records of your shareholdings. |
| Charges | You have to pay account maintenance charges annually for holding dematerialised shares. | There is no need to pay annual maintenance charges in the case of rematerialised shares. |
| Trading | You can trade in dematerialised securities easily on stock exchange markets. | You cannot trade in rematerialised securities on stock exchange markets. |
| Distinct ID Number | Dematerialised shares do not have any distinct number. | Rematerialised shares have a distinct number. |
| Security | With dematerialisation, there is no threat of misplacement and theft. | Rematerialised shares can be misplaced or stolen. |
Dematerialisation and Rematerialisation: Which is Better?
Between dematerialisation and rematerialisation, the former is always better to choose. This is because carrying dematerialised shares is more convenient than physical shares.
Moreover, trading in dematerialised securities is much quicker than trading in physical certificates. Not just that, there is no threat of theft, damage or fraud in the case of dematerialised shares.
However, you will have to pay annual maintenance charges to keep your Demat account active and trade shares in their electronic formats.
In conclusion, dematerialisation and rematerialisation processes are exactly opposite of each other. While dematerialisation allows you to convert your physical shares into digital form, you can convert your electronic shares back to physical shares through rematerialisation.