Mutual funds in demats be damned

A must-read if you keep your mutual funds in a demat account

Demat account for mutual funds: A must read

dhanak हिंदी में भी पढ़ें read-in-hindi

When investing in mutual funds, you have two options: receiving your units in a Statement of Account (SoA) or your demat account, both of which are digital, eliminating the need for paper certificates.

The SoA option offers a more traditional way to hold mutual fund units. In this case, you deal with the asset management company (AMC) directly. The AMC issues a statement indicating your fund holdings when units are allotted.

On the other hand, in demat form, a Depository Participant (DP) like Central Depository Services and National Securities Depository holds the mutual fund units. Demat units can be bought and sold through brokers, or your DP.

Which mode is better: Demat or SoA?

Earlier, demat accounts allowed you to view all your investments in one place. However, having a consolidated view of your investments is now also possible through the CAS (Consolidated Account Statement), and one need not necessarily have a demat for the same.

The table below highlights the differences between mutual funds held in a demat account vs SoA:

Mutual funds in a demat account Mutual funds in Statement of Account
1. Cost Many demats charge annual maintenance, transaction, account opening fees, over and above the specified charges of mutual funds, due to a depository participant's (DP) involvement. A DP manages your securities electronically. SoAs don't charge anything extra, as DP is not involved
2. STP/SWP facility There are a few demat accounts that don't offer this facility. Soon-to-be retirees, take note. SoAs provide both features
3. Investing in direct plans Since DPs often act as fund distributors, they only allow you to invest in regular funds SoAs allow you to invest in direct funds. Meaning, if you know where to invest, you can earn greater returns.
4. Flexibility in transactions You have to log into your demat account to transaction or withdraw your investment You can transact in multiple ways (mutual fund website, RTA's Office, MF Utility, MFCentral, etc)
5. Contact with the AMC Your queries to the AMC are sent back to the DP SoA investors can approach the AMC for any friction
6. Nomination flexibility The nominee for the demat account is considered the nominee for all investments An investor can have different nominees for different funds
7. Mutual fund coverage Not all mutual funds are available. It differs from DP to DP. All mutual funds are available
8. Processing time In certain cases, it may take a bit longer for the redeemed money to be credited to your demat account It is usually a faster process under SoA

As it can be seen, for most investors, SoA is the preferred choice, offering a simpler and more straightforward way to hold mutual funds.

What you should do

Switch to the SoA option. They help you save money, are faster and more flexible.

  • If you have a distributor handling your money, call them and ask if you hold funds in a demat account . If that's the case, get it converted to a Statement of Account (SoA).
  • If they try to sell you demat accounts, change your distributor. (They might be earning a brokerage).
  • Only if you buy ETFs (exchange-traded funds) should you have a demat account. For all the other funds, SoA works best.

How demat account is converted

Step 1: Submit a signed Rematerialisation Request Form (RRF) to your DP (the entity that manages your demat account). You'll get this form from the DP itself.

Step 2: The DP will verify the form and send it to the RTA, a body that maintains mutual fund records.

Step 3: The RTA will transfer your investments to SoA.

That's pretty much it. You just need to file the RRF by having your Aadhaar and PAN next to you.

By changing to the rather-convenient Statement of Account (SoA), you'll earn higher returns and stop paying unnecessary fees for a start.

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