Converting your physical shares into the electronic format is called dematerialization. Holding physical shares involves risk and shares in the Demat Account are stored easily. Once you open a Demat account is also known as Dematerialized account. In other words, converting or dematerializing your physical shares in the electronic format is known as holding a Demat Account.
Rematerialisation is the reversal of the dematerialisation process. Investors who have converted their debenture certificates and securities into an electronic format can choose to return them to their physical forms again. Some people decide to rematerialise their shares to evade the maintenance cost of a Demat account. However, it’s worth noting that once you rematerialise the securities, all transactions will take place only in a physical format.
Physical Shares means, with respect to a person or entity, shares Beneficially Owned by such person or entity as to which such person or entity directly or indirectly has voting and investment power and which are held either of record by such person or entity or through a broker, dealer, agent, custodian or other nominee that is the holder of record of such shares.
A trading account is used to buy/sell shares in stock markets. Once you have a Demat Account, you need a Trading Account which has a unique trading number used to trade in shares. Once you start trading in share markets, you need three accounts: Bank/Demat/Trading Account. Trading Account acts as a link between your bank account and Demat account, allowing you to trade in stock markets. Having an online trading account helps you to secure access to multiple stock markets.
|Definition||Physical shares are converted into the electronic format||Electronic shares are converted to the physical form|
|Cost of maintenance||Annual maintenance costs and other transaction fees are applicable as specified by the broker||Physical certificates do not require maintenance charges|
|Disadvantages||No threats to shares held in the electronic form||High chance of theft, misplacement, fraud and forgery|
|Identification attributes||Shares held in the dematerialised form do not have a distinct number||Physical shares hold distinct numbers issued by the RTA|
|Transaction approach||All transactions take place electronically||Post rematerialisation, transactions take place physically|
|Maintained by||NSDL or CDSL — depository participants — maintain the account||The company maintains the account|
|Challenges||Dematerialisation is a simple and easy process; mandatory when trading in shares.||Rematerialisation a complex procedure and takes an extended period of time. The process is typically a long drawn and requires expert assistance.|
|Application form used||Investor needs to fill out the Dematerialisation Request Form [DRF]||Investor needs to fill out the Rematerialisation Request Form [RRF]|
|Sequence||It is the principal and primary function of the depository, and is an initial process.||It is a secondary and supporting function of the depository and a reversal procedure.|
|Demat account||Trading account|
|Functional Difference||Demat account is used to hold securities in an electronic format.||Trading account is used to buy/sell shares in the stock market.|
|Nature||A Demat account works just like a savings account. Like a savings account holds money, a Demat account allows investors to store financial instruments in a dematerialized or electronic form which are debited and credited accordingly.||A trading account, on the other hand, functions more like your current bank account. You need to have both Demat as well as a trading account to trade in the stock market.|
|Measurement of time:||As a Demat account holds your shares, it is measured as a stock at a specific point in time i.e., the end of each financial year||Trading account is a flow statement reflecting your trading transactions measured over some time.
|Key role||The key role of a Demat account is to ensure the safety you need in a trading account to purchase/sell shares.|
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