Let us first begin by learning the meaning of the term dematerialisation.
Dematerialisation is the process of converting the physical share certificates and debenture certificates into electronic form.
Holding shares and securities in electronic form is much easier as compared to physical form. In addition, dematerialisation reduces many risks attached to the physical holding of shares. The shares or securities in dematerialised form are stored in electronic format with a depository. In India, there are two authorized depositories; National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd (CDSL).
Let us now learn the meaning of the term rematerialisation.
An investor who has converted his shares or securities in an electronic form and now again wants to convert them into physical form can do so by opting for rematerialisation process.
People opt for this process in order to avoid the maintenance charges on a demat account. To convert shares or securities in electronic form from physical certificates, you need to fill a Remat Request Form (RRF) and visit the Depository Participant (DP).
Let us now learn about the process of dematerialisation
Firstly, you need to open a demat account by approaching the depository participant or stockbroker.
Next, you need to fill the DRF (Dematerialisation Request Form) and submit it to the DP along with your share certificate.
The DP shall send your request for dematerialisation to the depository and RTA.
The registrar will complete the dematerialisation process and inform the DP about it.
Your demat account will get credited with the electronic form of the physical share certificates submitted earlier.
The dematerialisation process shall help you in converting your physical holding into electronic form. In this section of the article you will learn about the advantages of dematerialisation.
Reduced Risk: The risks relating to physical certificates like damage, forgery, loss and theft are eliminated with the usage of demat account.
Quick Transaction: Dematerialisation process has eliminated the usage of paper leading to higher efficiency and quicker processing of transactions.
Ease of Access: Dematerialisation has enabled trading and portfolio monitoring from anywhere across the globe. You can transact using a computer or a mobile phone. There is no more a need to visit the broker personally to carry out a transaction.
No Stamp Duty Cost: The physical holding of shares attracts stamp duty on the transfer of shares. Whereas in the case of dematerialisation, there is no stamp duty on the transfer of shares resulting in reduction of transaction cost.
Manage Multiple Securities: In the demat account, you can hold multiple securities like equity, debt instruments, bonds, mutual funds, exchange-traded funds, etc. at a single place.
Trade Unlimited Shares: Dematerialisation eliminates the problem of odd lots. Earlier, you could buy or sell a specified quantity of shares only. But now with the demat account, you can purchase or sell any desired quantity of shares.
Avail Loan: By using the securities held in the dematerialised form, you can avail the loan facility. The securities in the demat account will act as collateral against the loan taken.
Corporate benefits: Corporate benefits like dividend, interest or refund are directly credited into the demat account. In fact, corporate actions like stock split, bonus issue or right issue are automatically updated in the demat account.
The above mentioned are a few of the advantages of dematerialisation. There is no doubt that the introduction of demat accounthas made investing and trading in the stock market convenient and safe for the Indian investors. If you are looking to invest in equities or open a demat account, you can consider opening a demat account with Kotak Securities.
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