Your Fund Portfolio

Varun Dambal

Investments in mutual funds can be held in a Statement of Account (SOA) form or in a dematerialised (demat) form. Both of these are electronic forms of holding; no physical certificates are issued.

In the SOA form, your mutual fund units are held by the registrar and transfer agents (RTAs) of mutual funds. In the demat form, your mutual fund units are held by the depository participant (broker) in your demat account.

In SOA, the mutual funds you have invested in will give you the investment details, while your depository participant gives you the details in the demat account.

The SOA will have the details of only your mutual fund holdings, while the demat account will have details of many financial assets such as equities, bonds and mutual funds.

Unlike stocks, it is not compulsory to have a demat account to buy and sell mutual fund units. You can buy and sell mutual fund units online or offline through direct plans or through regular plans (through distributors), even without a demat account.

Both the SOP and demat forms of holdings are equally safe. Both have some pros and cons though.

Given the consolidation in one account, the demat form can be less cumbersome when it comes to transmission of financial assets, including mutual fund units, to legal heirs on the death of an investor.

Also, if you want to buy and sell exchange-traded funds (ETFs), you need to have a demat account.

But in demat accounts, there are costs involved in account opening and maintenance, and brokerage on transactions that could vary across brokers.

Also, some transactions such as systematic transfer plans (STPs) and systematic withdrawal plans (SWPs) may not be allowed in the demat form.

Besides, in the demat form, you can invest only in regular plans of mutual funds and not in direct plans that are cheaper.

In the SOA form, costs will be lower than that in the demat form. Also, you can invest in both regular and direct plans, and transactions such as STPs and SWPs are allowed in the SOA form.

Besides, some transactions such as buying and selling liquid funds on the same day can be done in the SOA form, but may not be possible in the demat form due to operational issues.

On the flip side, on the death of an investor, the process to transfer the units to the legal heir could take more time because the RTAs of all the mutual funds have to be informed separately.

Earlier, a complete view of investments could be got only in the demat account. But this is not the case now.

So, even in the SOA form, the CAS (consolidated account statement) being provided by depositories such as NSDL and CDSL on a monthly basis (if there are transactions) or on a half-yearly basis gives details about your financial assets, including mutual funds. This statement can also be obtained anytime on request.

To shift your units from the SOA form to the demat form, you will have to submit a demat request form or a conversion request form to the depository participant, along with the account statement of your fund holdings.

But given that there are no significant advantages and also because it will entail an increase in cost, there seems to be no pressing need to shift to the demat form, especially if you do not already have a demat account and do not want to transact in ETFs.

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