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.
- Dematerialisation Meaning?
- Dematerialisation Process
- Advantages Of Dematerialisation
- What Is The Difference Between Dematerialisation And Rematerialisation?
- What Is Dematerialisation – Quick Summary
- Dematerialisation Meaning – FAQ
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.
In the dematerialization process, physical securities are turned into digital files. There are a few steps to this process:
- Open a Demat account: Firstly, an investor needs to open a demat account with a Depository Participant (DP), such as Alice Blue.
- Surrender physical shares: Once the account is active, physical share certificates must be surrendered to the DP with a ‘Dematerialisation Request Form’ (DRF).
- Verification: The DP then sends these documents to the company’s registrar.
- 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:
|Direction of Conversion||Physical shares converted to electronic format||Electronic shares converted to physical format|
|Purpose||Ease of handling, quick transactions, reduced risks||Personal preference or specific needs|
|Time||Quicker and simpler process||More steps and a longer time|
|Document Handling||Eliminates the need for physical share certificates||Requires physical share certificates|
|Storage||Electronic shares stored in a demat account||Physical share certificates require storage space|
|Accessibility||Shares can be accessed and managed online||Physical shares need to be physically located|
|Risks||Reduced risks of loss, theft, or damage of physical shares||Exposure to risks associated with physical certificates|
|Cost||Cost-effective due to reduced paperwork and storage costs||May incur additional expenses for printing physical certificates|
|Record-keeping||Efficient and accurate electronic record-keeping||Manual record-keeping of physical certificates|
|Transaction Speed||Faster and more efficient electronic transactions||Delays in processing physical share transactions|
|Transferability||Electronic shares can be easily transferred between accounts||Physical shares require cumbersome transfer processes|
|Market Integration||Facilitates seamless trading on stock exchanges||Limited 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:
What Is Dematerialisation – Quick Summary
- 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.
- 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.
- There are numerous advantages to dematerialisation, including easy accessibility, quick transfers, reduced risks, cost-efficiency, and increased liquidity.
- Dematerialisation and rematerialisation represent opposite processes. While dematerialisation converts physical shares into digital format, rematerialisation converts digital shares back into physical form.
- 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.