Difference between dematerialization and rematerialization

• Dematerialization is the process of converting tangible securities into digital ones.
• In other words, it will involve replacing electronic records with physical certifications.
• A depository, which will serve as an intermediary between the investor and the business whose shares are being dematerialized, will often accelerate the process of dematerialization.
• Rematerialization refers to the process of transforming digital securities back into physical form.
• This process is less common than dematerialization because most of the investors prefer to hold the securities in an electronic form due to their convenience and security.
• The investor should also submit a DRF to their DP along with details on the securities they will want to rematerialize to start the dematerialization process.
• Dematerialization and rematerialization are two aspects of the same process.

Dematerialization and rematerialization in various industries

• In several sectors, including banking and financial services, trading and the stock market, and real estate, dematerialization and rematerialization are crucial.
• Within the banking and financial services industry, dematerialization expedites transactions, improves consumer convenience, and will allow for the safe storage and movement of financial assets.
• Dematerialization will facilitate speedier settlement times, more market liquidity, and more effective trading in the stock market.
• By digitizing policy paperwork and enabling faster claims processing, dematerialization will benefit the insurance business.
• Dematerialization will lower fraud, increase transparency, and also streamline property transactions in the real estate industry.
• Whereas, rematerialization will offer the investors the same freedom, enabling them to keep tangible certificates as per their preference.

Difference between dematerialization and rematerialization

Challenges faced by dematerialization and rematerialization

• Adopting both of these comes with a number of difficulties as well.
• The requirements for a strong infrastructure, safe electronic systems, and defense against cyberattacks are the main examples of technological problems.
• Resolving any of the anomalies throughout both of these processes, assuring smooth market participant integration, and educating the investors are all examples of operational hurdles.
• Legal and regulatory issues include adhering to security regulations, meeting paperwork needs, and settling disagreements over the rightful owner or validity of the tangible and digital assets.

What is the dematerialization process?

• This process will commence with the initiation of the demat account.
• To open a demat account, one must first select a DP that will provide demat services.
• In order to convert physical shares into electronic/demat form, a DRF must be completed.
• This entire process typically takes 15 to 30 days from the time the dematerialization request has been submitted.
• Understanding the process of opening a demat account is crucial, as it is a prerequisite for dematerialization.

What is the rematerialization process?

• The DP should provide the RRF to the clients.
• The DPM will generate the RRM, which must be recorded on the RRF.
• An authorized person, other than the one who entered the RRF details in DPM, should verify the RRN details and also authorize the request to the depository.
• The DP must complete the authorization of the RRF and forward it to the issuer or its R&T agent for rematerialization within 7 days of acceptance.
• Upon receiving confirmation of the debit entry in DPM, the DP should notify the client accordingly.

Step-by-step guide for dematerialization of shares and securities

Step 1

• Open a trading and a demat account with an online DP.
• Once all the required fields have been filled out, attach the share certificates and submit the DRF.
• Make sure to note on each share certificate that it was surrendered for dematerialization.

Step 2

• With the provided SAGE certificates, the DP will for  ward your request for dematerialization to the appropriate depository, transfer agents, and registrars.

Step 3

• The demat account of the investor will display all the shares that were submitted as electronic share certificates after the registrar has confirmed it.
• The procedure might take a week to three months.

HOW TO SELL AND BUY DEMATERIALIZED SECURITIES?

Buying dematerialized securities

• Start by selecting a reputable broker to facilitate the transaction.
• After the purchase, the broker will receive the securities in their account on the very same day.
• The broker will then contact the DP to initiate the process of debiting their account and crediting the account of the investor.

Selling dematerialized securities

• You have the option to sell through a broker at any of the stock exchanges to the NSDL.
• The DP should be notified with the instructions to debit the BO account and then credit the account of the broker.
• The broker is held responsible for instructing the DP to deliver the securities to the clearing corporation, utilizing the provided instruction slips.
• Following the sale, the broker will receive the payment from the stock exchange, while the seller will receive the proceeds from the sale of the securities.

Conclusion

Both these processes, dematerialization and rematerialization, have reduced the risk of fraud, theft, and forgery of physical share certificates to a very great extent.

Frequently Asked Questions (FAQs)

Q1) What is the main difference between dematerialization and rematerialization?

While dematerialization will convert physical shares into an electronic form, rematerialization will do the reverse.

Q2) What is the opposite of dematerialization?

Rematerialization is the opposite of dematerialization.

Q3) What do you mean by rematerialization?

It is the process by which the client can get his electronic holdings converted into physical certificates.

Q4) What is the difference between IPO and NCD?

In an IPO, shares are offered to the investors for the very first time, whereas, in NCD, debentures are offered to the investors.

Q5) Which is the first depository of India?

NSDL is the first depository of India.

About Us

Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.