It is interesting to note how people used to invest in the stock market even before electronic trades had come up. From digging out long forgotten, old share certificates of your ancestors, to trading in international stock exchanges at the click of a button, trading has come a long way. Yet, there remains a case for rematerialisation of shares as people find old hidden share certificates in their homes.
Defining Dematerialisation and Rematerialisation
Dematerialisation refers to the process of holding shares in electronic form. The terminology is known as “Demat”. Dematerialisation of shares is a mandatory step before trading in the electronic share market and it eliminates the risks associated with the shares as and when they are in the physical form. For example – theft, misplacement, tearing etc.
Rematerialisation is the reverse process of Dematerialisation. It is the process of conversion of the electronic form of the shares into a physical format. Some investors ask for rematerialisation of their holding shares to avoid maintenance charges, which are paid to brokers by the Demat account holder. Rematerilization is also common in case of company liquidation as the investor would want to book the losses or for accounting purposes.
Reasons to go for Dematerialisation
In India, two depositories NSDL (National Securities Depository Limited ) & CDSL (Central Depository Services Limited) keep records of million and million transactions in electronic form. These depositories track the transactions and store shares and other financial instruments under the framework stipulated by SEBI.
- Trading has become more popular and convenient and investors can trade through a computer or mobile trading app from anywhere. All this has become possible due to the advent of Dematerialisation.
- It reduces paperwork and supports quicker transactions with high efficiency and accuracy.
- The extra shares which are created (owing to corporate actions like Bonus Shares) through companies’ actions are directly credited to the Investor account by the company.
- There is no major expense required in case of dematerialisation so it reduces the cost of transactions significantly
- A Demat account allows any number of buying and selling of shares, which is difficult in the case of physical form share trading.
- A Demat account holder can take a loan against his/her holding shares in Demat Account. Those shares are used as collateral securities to the lender of the loan.
Comparative Parameters
- Meaning – Dematerialisation is the process of converting physical form into electronic form whereas; Rematerialisation is the process of converting electronic form into physical form.
- Transaction Mode – All transactions are done in electronic form in Dematerialisation. All buying and selling transactions are recorded into electronic form with depository ( NSDL & CDSL) in case of Dematerialisation.
In the case of Rematerialisation, shares are dealt with in the physical form. - Maintenance Charges – In the case of Dematerialisation, account holders need to pay annual maintenance charges to depository participants. It varies between Rs 500 to Rs 1000.
No maintenance charge is needed to pay in case of Rematerialisation. - Identification Of Shares – Distinctive numbers are given to physical shares and dematerialized shares.
- Safety- The safety level of shares and debentures in case of dematerialisation is high. All securities are recorded in electronic form so they can not be stolen or misplaced easily.
In the case of Rematerialisation, the probability of cases of fraud and forgery is high. - Complexity- Dematerialisation is an easy process and easy to maintain in the account as well. Nowadays, all investors prefer to have traded with a Demat form of account.
The rematerialisation process is complex and time-consuming. There is a need for expert supervision and assistance also for maintaining it. - Possession Of Shares- The actual possession of shares passes from investors to depository participants holding the shares under the name of respective shareholders in case of dematerialisation.
Actual possession of shares passes to Investors from Depository participants in case of Rematerialisation. - Easily Accessible- Dematerialisation enables close observation of portfolio and shares trading from anywhere all across the globe.
In physical form, investors need to visit brokers personally for carrying on any transaction. - Time Efficient- Even a second of an hour matters a lot for the share market. Investors can catch the right price of the share at the right moment in the Demat form of the account.
The rematerialisation form is not time-efficient. - Corporate Benefits- In a Demat account, an investor gets updates regarding corporate actions. Dividend declaration, split shares, bonus shares etc. are automatically updated in case of dematerialisation.
- Nominee Option- The demat account holder can choose one nominee that can operate his/her account in their absence, This is meant for when the primary account holder is deceased or incapacitated.
- Single Account For Multiple Products- The investor can buy not only shares in his Demat account but also bonds, ETFs, mutual funds etc. He can trade in currencies and commodities markets with one single account, He can apply for IPOs with his existing Demat account. Demat account is considered as one account for multi-purposes.
- One Can Maintain Multiple DP Account- A trader or Investor can maintain multiple DP accounts for trading with various depository participants that too with the same name. He can transfer his shares from one depository account to another.
Step-by-Step Process for Dematerialisation of Shares & Securities
It is an easy process for requesting the dematerialisation of shares & securities. According to the SEBI rules, an investor needs to fill the DRF form and send it to his DP for the dematerialisation process. It is a mandatory step before dealing in shares.
- Investors need to find a depository participant who offers Demat service and is registered with any share depositories (NSDL or CDSL).
- An investor will submit his DRF( Dematerialisation Request Form) along with the physical shares certificate to his DP. He needs to mention ” Surrendered for Dematerialisation” on each certificate.
- Investors need to submit a self-attested photocopy of some important documents along with a form such as PAN card copy, address proof, identity proof, passport size photograph, cancelled cheque of active bank account for the verification process. An authorized employee of depository participants verifies all documents with originals and submits them for further procedures.
- The DP will start processing by forwarding the request to the Depository, Registrar and transfer agent along with the physical share certificate.
- The Registrar keeps informing the status of the request DP.
- After confirmation, the Demat account comes into existence and one reference number is generated. That reference number is used for all share related matters and services. An investor can track his portfolio by using this customer id & reference number.
- This electronic share transfer process may take 15 to 30 days.
Step-by-Step Process for Rematerialisation of Shares & Securities
Despite the convenience of the Demat account, some investors request for rematerialisation of shares to avoid the unnecessary cost of maintaining the account for only a few shares.
For rematerializing the shares, investors need to fill Remat Request Form.
- An investor will submit the RRF form to his DP.
- The DP forwards the form to the depository. After a check, the depository forwards that form to the Registrar of the company. Then the Registrar will issue the physical certificate of shares after verification and send it to the Investor.
- The rematerialisation process may take up to 30 days.
How an Investor can Buy or Sell Dematerialised Securities
Once an investor opens his Demat account, he can buy or sell shares. There are a few functionalities requiring familiarizing before you start trading such as limit order, market order, stop-loss, bracket order, bid, ask, quote etc. These factors can help you in profits and loss in stock trading, thus it is always advisable for investors to understand the terminology clearly and then initiate. A Demat account provides the facility of one-click order and one wrong click can cause a potential loss.
Conclusion
Dematerialisation has made share trading handy and smoother than the traditional method. The electronic form of trading has taken the financial services industry to newer heights. Nowadays, investors can purchase or sell other financial instruments such as bonds, mutual funds etc. in their Demat account. The demat account eases the trading journey whether you purchase large or small quantities. According to SEBI regulations, physical shares can not be purchased in large quantities. A Demat account is easy to maintain and all records of transactions are kept with NSDL and CDSL. The dematerialisation process has opened the door for many traders, small investors, regular traders which provides them with a platform to trade.
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