Dematerialisation & Rematerialisation: Meaning and Process

What is Dematerialisation?

Dematerialisation meaning refers to the process of converting physical security certificates into digital or electronic forms. The term 'Demat' is formed by 'De' + 'mat', where Mat is the short form of 'materialisation', where materialisation denotes the physical format of the securities. The process eliminates the hassles of keeping and carrying physical copies of securities. This conversion simplifies security holding, management, and keeping track of transactions.

What is the Dematerialisation Process?

Dematerialisation involves digitising shares and security certificates. An investor or a trader must have an account with a DP in order to dematerialize their securities.

Step 1: Open a Demat Account

To dematerialise, an investor must create a Demat account with a DP or brokerage firm. A demat account stores all the shares and securities digitally.

Step 2: Complete the KYC

To complete the account opening process, the investors and traders must complete the KYC process. It involves ID card verification, face verification, document verification, such as utility bills as proof of address and biometric verification.

Step 3: Submit the Dematerialisation Request

An investor may seek dematerialisation of their physical share certificates or assets after opening a Demat account. This usually involves completing a DP-provided Dematerialization Request Form (DRF).

Step 4: Surrender Physical Certificates

Physical copies of the investor's shares or securities certificates must be returned to the DP. Prior to initiating the dematerialisation procedure, the DP asserts that the certificates are authentic and valid.

Step 5: Processing and Verification

The DP then transmits the tangible certificates and the dematerialisation request for verification and approval to the applicable firm or its registrar and transfer agent (RTA).

Step 6: Updating the Electronic Records

The electronic records in the depository's system are updated by the firm or RTA, following approval, to reflect the transformation of physical certificates into electronic or dematerialised format.

Step 7: Crediting the Demat Account

Once dematerialised, the securities are transferred into the investor's Demat account, allowing electronic holding and trading. The dematerialisation process usually takes two to four weeks after request filing, depending on the depository, firm, and RTA's efficiency.

How Do You Sell and Buy Dematerialised Securities?

Dematerialised securities are electronic stocks and securities. Brokers and depository participants assist in dematerialised securities trading.

1. Log In to a Demat Account: You must first log in to your demat account with unique credentials.
2. Search for the Stock: Find the stock or investment options on the platform of your broker.
3. Place a Buy or Sell Order: Put a sell or buy order after selecting the shares or securities.
4. Order Execution: Your broker will purchase the needed shares from the market when you submit a buy order. The broker will credit your Demat account with the purchased shares if the order is successful.
5. Settlement and Transfer: Once you sell your stocks or shares, they will get debited from your demat account, and the broker transfers dematerialised shares to buyers' Demat accounts via the depository system.
6. Transaction Completion: After completing the transaction, the securities will either be credited or debited from your demat account.

What is Rematerialisation?

Rematerialisation meaning refers to the process of converting electronic or dematerialised securities into physical certificates. Investors may request physical share certificates or other security papers instead of electronic ones, reversing dematerialisation.

What is the Rematerialisation Process?

Rematerialisation converts electronic or dematerialized assets into physical certificates for investors. The reversal of dematerialisation lets investors keep physical share certificates instead of digital ones. There are two types of rematerialisation process. Obligatory rematerialisation is necessary for some assets, whereas optional rematerialisation enables investors to turn their digital holdings into hard copies.

1. Filling up the Remat Request Form: The first step of the rematerialisation process involves filling out a Remat Request Form from their Depository Participant and selecting the securities.
2. Verification of RRF: The DP checks the RRF for accuracy. The DP gives the investor an acknowledgement slip after verification.
3. Informing the Depository: The DP electronically notifies the depository of the investor's rematerialisation request after verification.
4. Forwarding the Request to the Issuer/Registrar and Transfer Agent: The depository notifies the firm's R&T Agent of the rematerialisation request.
5. Verification and Processing by the Issuer or R&T Agent: The Issuer or R&T Agent validates the request, prints the tangible share certificates, and ships them to the investor. Simultaneously, they electronically confirm the request's acceptance to the depository.
6. Dispatch of physical certificates: After successful rematerialisation, the investor gets their printed share certificates or security papers from the Registrar & Transfer Agent.
7. Updation of accounts: After providing physical certificates, the depository debits the investor's blocked electronic money to dematerialise securities.

What are the Differences between Dematerialisation and Rematerialisation?

Conclusion

Dematerialisation and rematerialisation offer their own benefits. Dematerialisation simplifies, secures, and lowers the cost of securities trade. Rematerialisation, on the other hand, allows investors to have tangible certificates for particular preferences or needs. Modern financial markets favour dematerialisation, but investors must understand the distinctions between these two processes to make educated stock ownership choices.