August 11, 2023

What is dematerialisation

What Is Dematerialisation?

Dematerialization is turning physical shares or other securities into digital files that can be stored in a Demat account. In India, dematerialization is the process a shareholder goes through when they want to move their physical shares into a digital format. 

Contents:

Dematerialization Meaning?

The term ‘dematerialisation’ refers to the transformation of physical financial instruments such as share certificates or bonds into electronic form. This conversion allows for easy handling, transfer, and record-keeping.

Dematerialisation Process

In the dematerialization process, physical securities are turned into digital files. There are a few steps to this process:

  1. Open a Demat account: Firstly, an investor needs to open a demat account with a Depository Participant (DP), such as Alice Blue.
  2. Surrender physical shares: Once the account is active, physical share certificates must be surrendered to the DP with a ‘Dematerialisation Request Form’ (DRF).
  3. Verification: The DP then sends these documents to the company’s registrar.
  4. Conversion to digital format: After verification, the registrar updates the depository about the approval, and the physical shares are destroyed. The corresponding electronic securities are then credited to the investor’s demat account.

Advantages Of Dematerialisation

One of the main advantages of dematerialisation is that it eliminates the need for physical documents and transforms them into electronic form. 

There are many benefits to dematerialisation:

  • Easy Accessibility: Shares in a digital format can be easily accessed and managed online, simplifying portfolio management.
  • Quick Transfers: Digital shares can be instantly sold or transferred, avoiding lengthy paperwork associated with physical shares.
  • Reduced Risks: Dematerialisation mitigates the risk of loss, theft, or damage of physical certificates.
  • Cost-Efficiency: It saves the costs associated with stamp duty, handling, and storing physical documents.
  • Increased Liquidity: Dematerialisation makes the buying and selling securities quicker, thereby increasing liquidity.

What Is The Difference Between Dematerialisation And Rematerialisation?  

Dematerialisation and rematerialisation represent opposite processes. While dematerialisation converts physical shares into digital format, rematerialisation converts digital shares back into physical form.

Differences between these processes include:

DifferenceDematerialisationRematerialisation
Direction of ConversionPhysical shares converted to electronic formatElectronic shares converted to physical format
PurposeEase of handling, quick transactions, reduced risksPersonal preference or specific needs
TimeQuicker and simpler processMore steps and a longer time
Document HandlingEliminates the need for physical share certificatesRequires physical share certificates
StorageElectronic shares stored in a demat accountPhysical share certificates require storage space
AccessibilityShares can be accessed and managed onlinePhysical shares need to be physically located
RisksReduced risks of loss, theft, or damage of physical sharesExposure to risks associated with physical certificates
CostCost-effective due to reduced paperwork and storage costsMay incur additional expenses for printing physical certificates
Record-keepingEfficient and accurate electronic record-keepingManual record-keeping of physical certificates
Transaction SpeedFaster and more efficient electronic transactionsDelays in processing physical share transactions
TransferabilityElectronic shares can be easily transferred between accountsPhysical shares require cumbersome transfer processes
Market IntegrationFacilitates seamless trading on stock exchangesLimited integration in electronic trading platforms

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:

Market What is Primary Market?
Difference between IPO and FPO
What is Secondary Market?
What is Bond Market?
Bull vs Bear Market
Trading What is Online Trading?
Difference between Futures and Options
What is Options Trading?
What is Commodity Trading?
What is Algo Trading?
Investment What is Bonus Share?
What is Valuation of Shares?
What is Corporate Action?
Analysis Stock Market Analysis
Individual Topics Stoploss Order
What are CTT & STT Charges?
India Vix
Difference between FDI and FII
Account What is Trading Account
What is Demat Account
Difference Between Demat and Trading Account

What Is Dematerialisation – Quick Summary

  1. The term ‘dematerialisation’ in finance symbolizes the transformation of physical financial instruments, such as share certificates or bonds, into electronic form for easy handling, transfer, and record-keeping.
  2. The process of dematerialisation involves several steps, including opening a demat account, surrendering physical shares to the DP, verification by the registrar, and conversion to digital format.
  3. There are numerous advantages to dematerialisation, including easy accessibility, quick transfers, reduced risks, cost-efficiency, and increased liquidity.
  4. Dematerialisation and rematerialisation represent opposite processes. While dematerialisation converts physical shares into digital format, rematerialisation converts digital shares back into physical form.
  5. To increase your financial standing, start your investment journey with Aliceblue.

Dematerialisation Meaning – FAQ

1. What is the meaning of dematerialisation?

Dematerialization is the process of turning physical securities into digital ones, which makes them easier to manage, move, and keep track of.

2. What is an example of dematerialization?

An example of dematerialisation is converting physical shares of Infosys into a digital format, which are then stored in a demat account with a Depository Participant, such as Alice Blue.

3. What are the two types of demat account?

The two types of demat accounts are:

  • Regular Demat accounts for Indian residents and 
  • Repatriable Demat accounts for Non-Resident Indians (NRIs).

4. What is the full form of demat?

The full form of ‘demat’ is ‘Dematerialised Account.’ It refers to a process or a mode wherein physical securities are converted into digital format.

5. What is the difference between physical share and demat share?

The primary difference between physical share and demat share is that physical shares are securities held in a physical, paper format. In contrast, demat shares refer to securities that have been digitized and held in an electronic form in a demat account.

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