Difference Between Dematerialization and Rematerialization

Anyone with even a passing interest in the financial markets is familiar with the term demat. Have you ever pondered what it actually means? The term "demat" refers to a dematerialized account, which is derived from the concept of dematerialization. Rematerialization is another commonly used term, which is often used in the context of markets. So, what exactly do the two terms mean, and how do they differ?

What is Dematerialization?

The process of converting physical debentures and share certificates into electronic form is known as dematerialization.

This reduces the risk associated with physically holding shares or debentures. Depositories such as the National Securities Depository Ltd (NSDL) and the Central Depository Services Ltd hold your shares in electronic format (CDSL).

The benefit of dematerialization is that it allows for quick and smooth transactions. Any transaction can be completed on your smart devices, including your smartphone. Any transaction does not require a personal visit to the broker. A dematerialized account also eliminates the dangers associated with physical holding, such as forgery, damages, or theft.

Other securities, such as mutual funds, bonds, and exchange-traded funds, can also be held in a dematerialized format. For the dematerialized holding of your shares, there is a maintenance fee. Any benefits you receive, such as refunds, dividends, or interest, are deposited immediately into your demat account.

What is Rematerialization?

An investor who has already converted his or her shares or securities to electronic form and now wishes to convert them back to physical form can do so through the rematerialization process.

This method is chosen by people who want to avoid demat account maintenance fees. To convert physical certificates into electronic shares or securities, you need to fill out a Remat Request Form (RRF) and contact a Depository Participant (DP).

Let’s evaluate some differences between Dematerialization and Rematerialization

· Rematerialization, is the process by which an investor who has previously converted shares or securities to a digital or electronic format now wishes to convert those shares to a physical one. On the other hand, Dematerialization is the exact opposite of this process. The major distinction between demat and remat shares is that demat shares are paperless, but remat shares need physical holding of shares.

· The investor would need to fill out a remat request form and pay a personal visit to the DP or depository participant in order to get electronically held shares and securities back into a physical format. While dematerialised shares lack a unique number for identification, rematerialised shares do have a unique number.

· All transactions involving shares will take place physically once they have been rematerialized. Physical certificates have no maintenance fees, but the process is time consuming, and there is always the possibility of fraud, damage, or theft when holding share certificates in your hands. The company is responsible for keeping physical shares and not the depository participant.

· Clearly, there are numerous advantages to dematerialization for a shareholder. Because consumers can trade or invest while on the road, the simplified internet method encourages more people to do so. Rematerialization, on the other hand, can be a lengthy and time-consuming process. Rematerialization is an option for investors who want to avoid paying maintenance fees.

Takeaway

An investor can choose between dematerialized and rematerialized methods of owning shares, however demat accounts are becoming more popular simply because they are easier to manage and the average investor has more confidence in transacting in this paperless and smooth manner.

Physical visits and careful storing of share certificates may be required if you go the remat option. It may be a simpler approach to open a trading account and start your journey into the markets if you are a beginner who intends to take up trading.