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Dematerialisation and rematerialisation are two processes that allow investors to switch between physical and electronic forms of securities. While most investors in India hold their securities electronically through Demat accounts, they can also convert these electronic holdings back into physical certificates through the rematerialisation process, if required.
Understanding the difference between these processes is important for anyone managing shares, bonds, or other securities. This article explains how dematerialisation and rematerialisation work, their key differences, benefits, and when each process may be relevant.
Key Takeaways
- Dematerialisation (Demat) converts physical share certificates into electronic form.
- Rematerialisation (Remat) reverses digital holdings back into physical certificates upon request.
- NSDL and CDSL are the two authorised depositories that maintain electronic records of investors’ securities.
- Demat holdings are safer and easier to manage because they reduce risks of theft, loss, and damage.
- SEBI mandates restrict the trading and transfer of physical shares for listed companies on Indian stock exchanges.
- Electronic holdings offer greater operational safety, instant settlement, and lower transaction costs than physical shares.
What is Dematerialisation?
Dematerialisation (Demat) is the process of converting physical security certificates, including shares, bonds, and debentures, into electronic entries managed by a central depository.
In India, securities in electronic form are safely preserved by two authorised central depositories: National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
When physical certificates are dematerialised, the unique share numbers and distinctive physical certificate details are cancelled. Instead, the securities are merged into an electronic balance, a digital record of your holdings maintained in your Demat account, identified by an International Securities Identification Number (ISIN).
Note: SEBI regulations mandate that all trading and transfer of shares for listed companies must occur exclusively in dematerialised form.
Also Read About: What is Dematerialisation?
What is Rematerialisation?
Rematerialisation, as the name suggests, is the reverse process of dematerialisation. In this case, electronic holdings are converted back into physical certificates. It is done by following certain procedures such as a request form to the Depository Participant (DP), who forwards it to the depository (NSDL/CDSL) and the registrar, who then issues physical certificates.
Although physical certificates may appeal to investors looking to avoid regular Demat account maintenance charges, electronic holdings offer enhanced security, convenience, and ease of transactions, making them a preferred choice for most modern investors.
Key Differences Between Dematerialisation vs Rematerialisation
| Parameters | Dematerialisation | Rematerialisation |
| Meaning | Transfers physical share certificates and debentures to electronic form | Conversion of electronic records of the share to paper (physical) form |
| Identification of Shares | Shares do not have a distinct number | Distinct numbers are issued by the RTA |
| Transaction mode | Electronic format only | All transactions take place physically |
| Account maintenance authority | Broker or bank (Depository Participant) maintains the account | The Issuing company oversees account maintenance |
| Maintenance costs | The annual charges for maintenance are applicable. | No maintenance charges |
| Security | Electronic records reduce forgery/duplication risk | Physical certificates are vulnerable to theft, damage or fraud |
Charges Involved for Dematerialisation and Rematerialisation of Shares
Dematerialisation involves a Demat account opening fee and an Annual Maintenance Charge (AMC), along with DP transaction charges.
In case of Rematerialisation, you need to pay RTA processing fees and courier charges for certificate delivery.
Documents Needed for Dematerialisation
- Dematerialisation Request Form (DRF)
- Address proof
- PAN
- Original share certificates
Also Read About: How to Fill a Dematerialisation Request Form (DRF)?
Steps for Dematerialisation of Physical Securities
Step 1: Form Submission
Submit the duly signed Dematerialisation Request Form (DRF) along with the required documents to your Depository Participant (DP).
Step 2: Authorised Signature
Submit separate DRFs for free securities and lock-in securities, wherever applicable.
Step 3: Verification and Processing
The DP verifies the details and creates the dematerialisation request in the system.
Step 4: Debit Of Securities
The DP defaces and mutilates the physical certificates and sends them along with the DRF to the issuer or Registrar and Transfer Agent (RTA).
Step 5: Account Credited With Electronic Shares
After confirmation from the issuer/RTA, the investor’s Demat account is credited with the dematerialised securities.
Documents Needed for Rematerialisation of Shares
Rematerialisation of digital securities can be done in a few easy steps. For this, you will need some key documents such as address proof, PAN card. Check full list:
- Two Remat Request forms for each ISIN, scrip or fund (PDF). Remat forms must be signed in Signature as per RTA Records and Signature as per DP Records fields.
- Address proof like self-attested copy of address (Aadhaar Card/Passport) proof.
- Self-attested copy of PAN card.
- ISR-1 form and SH-13 RRF nomination form, wherever applicable.
- Provide one annexure for each mutual fund, signed in both the Signature with DP and Signature with RTA sections.
NOTE: If you are submitting your Aadhaar card as proof, ensure that a masked Aadhaar is submitted to safeguard your privacy. To learn how to get the masked Aadhaar, see How to download Masked Aadhaar?
Steps for Rematerialisation Shares
Step 1: Submit the duly signed Rematerialisation Request Form (RRF) to the DP.
Step 2: The RRF can also be signed and submitted by the Power of Attorney (POA) holder, wherever applicable.
Step 3: The DP verifies the form details, generates the rematerialisation request in the system, and forwards it to the issuer or Registrar and Transfer Agent (RTA).
Step 4: After confirmation from the issuer/RTA, the securities balance is debited from the investor’s Demat account.
Step 5: The issuer/RTA issues the securities in physical form and sends them directly to the investor.
Dematerialisation vs Rematerialisation: Which One Should You Choose?
The choice between dematerialisation and rematerialisation depends on an investor’s preference and financial goals.
- Choose Dematerialisation - if you actively trade, invest in listed equities, seek instant liquidity or desire absolute protection against physical certificate damage, loss or theft.
- Choose Rematerialisation - if you plan to hold unlisted shares indefinitely without active market participation, wish to eliminate annual Demat account maintenance fees or require physical custody for specific legal or personal reasons.
Conclusion
Dematerialisation and rematerialisation serve opposite but equally important purposes in the securities market. Dematerialisation provides a modern, secure and convenient way to hold and trade investments electronically, while rematerialisation allows investors to convert their digital holdings back into physical certificates when required. Both processes exist to give investors flexibility over how they manage their holdings.
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