Is Holding Mutual Fund Units in Demat Form a Good Option?


A demat account is used to hold your shares and securities in an electronic form. The most valuable feature of a demat account is that it eliminates the need for physical paperwork, making it more convenient to buy and sell shares. And while this feature extends to mutual fund units, a lot of investors are confused about whether or not it is a good idea to hold them in a dematerialised form.

If you know how mutual funds work, you might also know that most transactions, if not all, take place online these days. As a result, every time your monthly SIP amount is debited from your bank account, you receive a consolidated statement of all your mutual fund investments via your financial advisor. With the ability to keep track not only of your holdings but different holdings patterns, what’s the need for an investor to convert mutual fund units into a demat account?

Benefits of Dematerialised Mutual Fund Units

Admittedly, the benefits are few. However, if you already have a demat account, and would prefer a single statement for all types of market holdings, then this might be a sensible option for you. There is also the fact that you will be able to enjoy paperless transactions if your mutual fund units are dematerialised. Lastly, you can transfer the units to the accounts of your nominees without restrictions, but you will be charged a brokerage of over 0.05 percent for each transaction in addition to the yearly demat fee.

Limitations of Dematerialised Mutual Fund Units

Holding mutual fund units in a dematerialised form will come with the following cons:

  • Additional Intermediaries:

From a demat provider to the clearing house, the bank to the stock exchange, the process of transacting would involve too many intermediaries. This would result in a rise in the cost of transactions, which are already expensive due to the brokerage fees involved.

  • Lack of Advisory:

A demat account is simply a platform that allows you to buy and sell mutual funds and other financial products. You are not entitled to receive any kind of advisory on the right way to go about planning your finances.

  • No Systematic Withdrawal:

Facilities like Systematic Withdrawal and Systematic Transfer, which are often necessary for planning your investments better, are not available.

When you reflect on the advantages and disadvantages of holding mutual fund units in a demat form, it’s clear that the cons outweigh the pros. So many online platforms offer the chance to view your portfolio at the click of a mouse, and that too without any annual fees, which makes the demat option seem redundant. In fact, it is worth noting that you can sign up for emails comprising of consolidated statements of your mutual fund holdings by contacting your RTA directly.

If you are interested to know more about mutual funds basics, don’t hesitate to talk to your financial advisor. It will help you plan your investments better and keep you updated about market trends.

Comments are closed.