There was a time when the default method of trading was by the means of physical certificates. Conventionally, this resulted in a large amount of paperwork for traders and investors as well as the associated risks of dealing with physical copies.
However, with time, a new alternative was introduced to the world of trading. This was the conversion of storing securities in digital formats instead of physical certificates. Having said that, there are various reasons due to which some traders opt to convert their electronic securities into physical forms.
The former process is known as dematerialisation while the latter is known as rematerialisation. In order to better understand the difference between the rematerialisation and dematerialisation process, let us first review what each of these terms mean:
Dematerialisation is essentially the process of converting physical share certificates, as well as debentures, into the electronic format. The term ‘demat’ in demat accounts stands for dematerialisation. This is because the account is essentially used by the investor to hold his dematerialised shares and securities.
In order to dematerialise your securities, you must approach a Depository Participant, or DP to open a demat account in India. For this purpose, the authorised depositories in India are the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
Rematerialisation is the process of converting securities that are in digital format into physical certificates. Any investor who has converted his securities into electronic formats stored in demat accounts, can opt for the rematerialisation process. However, while securities are undergoing the rematerialisation process, they cannot be traded on the relevant exchange.
Apart from the difference in definitions and processes, there are various other differences between the rematerialisation and dematerialisation process.
The matter of security of assets and transactions is an important distinction between dematerialisation and rematerialisation. In this regard, dematerialisation ensures a much higher level of security than rematerialisation. This is because in dematerialisation, securities are directly converted into a digital format and stored in demat accounts.
As a result, there is a far lower chance of forgeries, fraud or online theft that had impacted various investors before securities were stored electronically. On the other hand, rematerialisation involves paperwork and dealing with physical forms of securities, thereby increasing chances of encountering the problems mentioned above.
Dematerialisation is popular among investors today since it is an easy and comprehensive process. All you require is a trusted Depository Participant of your choice to open a demat account in India. It is largely due to the convenience of the dematerialisation process that most investors opt to convert and store their securities in electronic format.
Meanwhile, rematerialisation is a much more difficult and cumbersome process. Moreover, the process can also take a long time and often requires professional expertise to be done properly.
When your securities are dematerialised, trading with them becomes a smooth, transparent and straightforward process. Regardless of where you are situated, all your transactions can easily take place online via your online demat account.
However, this is not the case with rematerialisation. Since rematerialisation converts securities into physical formats, all transactions with those securities also need to be conducted physically, in the required locations.
Rematerialised securities do not require a maintenance cost from the investor. As they are stored in the form of physical certificates, the investor takes responsibility for holding and maintaining his securities.
However, dematerialised securities can only be held in a demat account. These demat accounts are provided by brokers and financial institutions and therefore, they levy a maintenance charge for the same. Having said that, these costs are minimal when considering the convenience of having your securities stored securely and conveniently in a digital format.
Another distinction between dematerialisation and rematerialisation is the matter of who holds the authority of your account. In the case of rematerialisation, the account authority lies with the company.
However, in case of dematerialisation, the account maintenance authority rests with the depository participant (which could be NSDL or CDSL). Since these services are instituted by the Securities and Exchange Board of India (SEBI), they are known to be reliable and transparent.
Overall, the processes of dematerialisation and rematerialisation are completely opposite in meaning and function. While the dematerialisation process converts securities from physical to digital formats, rematerialisation converts them back to physical certificates. The two processes and features are completely different and the decision to opt for either of them depends on your requirements as a trader.
Having said that, most traders today choose to avail the convenience and various benefits of dematerialised securities. You too can make the most of trading with dematerialised securities by opening a trading and demat account in India with IIFL. With IIFL, investors and traders can avail an all-in-one account through which you can trade in multiple securities online, at your own convenience.