You are currently viewing What are Dematerialization and Rematerialization? (With FAQs)

What are Dematerialization and Rematerialization? (With FAQs)

The Indian Stock Market was revolutionized in the year 1996 when SEBI (Securities and the Exchange Board of India) came up with an account known as the Demat Account. The whole purpose of the introduction of the Demat account was to get rid of the complex process of trading in physical stocks where traders had to be there at the stock exchanges to trade in the securities. Securities and the Exchange Board of India have introduced the Demat account, basically online trading, where traders or investors can trade online and even hold their investments in an electronic form. But, here arises a question, what happened to those physical shares which were bought before the year 1996?

That is in which the technique of dematerialization added by SEBI enables traders to transform their physical stocks into digital shapes thru a Demat account. The technique of dematerialization is critical to make certain you can trade in the stocks you hold in physical form by transforming them into digital form. This article will help you to understand what dematerialization is and what is dematerialization process.

Table of Contents

What is a Demat Account?

It is really important to know the concept of the Demat account before knowing the dematerialization process as you can only transform your physical stocks into digital form by opening a Demat account.

The word ‘Demat’ refers to Dematerialisation which is a process by which you can convert your physical stocks into digital form. Hence, a trader or investor can use a Demat account to transfer stocks, hold the stocks, and trade securities without any hustle-bustle. This makes trading much quicker, safer, and more efficient methods of trading and holding stocks in the stock market.

A Demat account enables manipulate your equity, bonds, and mutual fund investments. It is much like a savings bank account. The simplest distinction is that in preference to preserving cash in a bank account, a Demat holds securities – stocks, bonds, or debentures. You do not want to hold physical stocks with you if you have a Demat account.

Dematerialization Process

Before the advent of virtual buying and selling, people held physical share certificates with them. However, SEBI has made it obligatory that physical share certificates ought to be transformed to digital stocks thru the dematerialization technique. Dematerialization is the technique of changing your physical stocks into digital shapes. This includes four primary parties:

Depository, Beneficial owner, Issuer, and Depository participants.

At present, there are two depositories in India— National Securities Depository Limited and Central Securities Depository Limited. The issuer is the business enterprise that floats the stocks, while the depository participant is a SEBI-registered entity that acts as a middleman between the investor and the depository. Investors avail of depository offerings thru depository agents. Dematerialization is similar to retaining your cash in a bank account. In Demat form, your physical share certificates are changed by e-book entries; purchases of stocks are contemplated as a credit on your Demat account, and sales are contemplated as debits. Before you research what’s dematerialization technique, right here are a few regulations of the dematerialization technique:

  • In the technique of dematerialization, a business enterprise revises its Article of Association thru a unique decision withinside the fashionable meeting, permitting it to issue shares in digital form.
  • Private companies, then, must sign up with each NSDL and CDSL. The depositories have their very own set of standards for registration, and the company has to conform to them.
  • Post-registration, the depositories offer a completely unique ISIN for every stock. An ISIN is a 12-digit code used to become aware of distinct securities which include stocks, bonds, etc.
  • The corporations get the right of entry to depository offerings via an intermediary. If the company desires to switch the dematerialized stocks, it has to set up Demat connectivity from depositories.

Features of Dematerialization

The dematerialization technique includes several investor-orientated functions which permit buyers to trade very effectively and make knowledgeable monetary decisions. The dematerialization technique converts the physical form of shares into the digital form to make certain an investor can trade in the stocks by using of Demat account. Through dematerialization, investors or traders can safely transact because the depository institutions cross-check the transactions. Furthermore, because the dematerialization technique consists of the opening of the Demat account, it allows investors or traders the benefit of trading and different specific functions together such as data charts, stock analysis, financial reports, etc.

Sample Certificate
Sample Certificate

Importance and Benefits of Dematerialization

SEBI has made it very clear and mandatory to follow the dematerialization process and convert the physical shares into digital form. However, still numerous investors have physical share certificates they bought before the year 1996. Let’s understand some of the features of dematerialization:

Safety: Dematerialization removes the possibility of stocks being misplaced, or lost, increasing the safety of the holding stocks.

Convenience: Thanks to the digital nature of dematerialized stocks, the problems associated with their storage and renovation were eliminated. You may not address misplaced or broken certificates anymore.

Accessibility: All the information on stocks is saved electronically and digitally. This lets you get the right of entry to dematerialized stocks from nearly everywhere and every time by using the internet.

Cost-efficiency: Electronic buying and selling would not require bulky paperwork, which reduces a whole lot of expenses.

Flexibility: Dematerialization brought about accelerated flexibility and consequently progressed get the right of entry for small buyers. Now, you can buy/promote even a single share without any restriction on the numbers.

What is Re-materialization?

Unlike the technique of dematerialization, re-materialization converts digital stocks to physical share certificates. You can choose to rematerialize your stocks every time you want, and that’s carried out within 30 days. However, re-materialized stocks are illiquid as they can’t be traded till they’re transformed to digital stocks following the dematerialization technique.

Difference Between Dematerialization and Re-materialization

Dematerialized stocks have specific ISINs, and at the same time as re-materialized stocks have wonderful numbers.

  • Dematerialized transactions are done electronically. But re-materialized stocks are traded physically. As in step with the modern SEBI norms, re-materialized stocks can’t be traded.
  • Rematerialized stocks are maintained by depositories, at the same time as respective corporations hold re-materialized stocks.
  • Since digital stocks are saved in stable depositories, buyers want to pay the maintenance charges with annual prices starting from Rs. 500-1000. Individual buyers store re-materialized stocks that don’t levy any maintenance charge.
  • The maximum large distinction between dematerialization and re-materialization is the protection of the securities. The chance of robbery is decreased in dematerialized stocks, at the same time as it’s much easier to steal or forge physical share certificates.

Dematerialization and Re-materialization Process


The procedure of dematerialization is as follows:

  • To provoke the procedure of dematerialization, you need to open a Demat account thru a depository player.
  • Fill out a dematerialization request form and publish it to the DP (depository participants) with the physical certificate. Mention ‘Surrendered for Dematerialization’ on all of the share certificates.
  • After submission of the certificates and form, the DP verifies the info and forwards the application form to the company and the registrars thru the depository.
  • Post-approval, the physical share certificates are destroyed and the precise quantity of digital stocks is credited to the Demat account.
  • The stocks are credited withinside the Demat account of the investor after receiving affirmation from the depository.
  • The whole procedure takes 15-30 days.

However, when you have dematerialized stocks and need to transform them again into physical shares, you need to undergo re-materialization.


  • Fill out a Remat request form and publish it to the depository player.
  • On receiving the request form, the DP verifies the info and if the whole thing is in order, they issue an acknowledgment slip with stamp & sign.
  • Post-verification of info, the DP intimates the depository approximately the re-materialization request. The DP enters the request in a software program and a Re-materialization request Number is generated.
  • The depository forwards the request with the files to the registrar of the business enterprise.
  • The registrar, then, verifies all of the info. In case of any discrepancies, the registrar will call for its rectification and ahead with the request to the DP.
  • If all of the info is located correctly, the registrar informs the depository and proceeds to print the certificate.
  • The registrar sends the physical share certificate to the client. Post-conversion, the stocks are allocated through the registrar.
  • The depository on receiving the affirmation, informs the DP who then notifies the investor and updates the account. The whole procedure takes 30 days.

Process of Dematerialization:

The system of dematerialization Includes steps. The first is starting a Demat account, and the subsequent is to elevate a request for the dematerialization of stocks.


Dematerialization of the stocks is a crucial step in securing your investments and making sure that you could alternate them without difficulty and quickly. Now that you recognize what’s dematerialization, you could open a Demat account and lift a dematerialization request to transform your physical share certificates into digital form.

Further Readings:

Click on the below links to read relevant articles.


What is dematerialization in simple words?

Dematerialization is converting physical stock certificates into electronic form, making them easier to maintain and accessible from anywhere. Shares were held in the form of physical certificates that were cumbersome to store and transfer.

How can I Demat my old shares?

Once your Demat account has been opened, please complete the Dematerialization Request Form. Bring your physical stock and give it to your DP while you fill out the form. Please do not forget to write “Delivered electronically” on the stock certificate.

How long does it take to dematerialize shares?

Converting physical inventory to electronic form typically takes 15-30 days.

Is dematerialization of shares mandatory?

Under the new Rule 9A, all unlisted public companies are required to issue securities only in electronic form in accordance with the Depository Act of 1996 and it is required to take all necessary measures to promote the dematerialization of all the existing securities.

What will happen if I don’t demat my physical shares?

In this case, the shares cannot be sold or transferred after April 1, 2019. You must wait until your shares are dematerialized before selling/transferring your shares.

Leave a Reply