Pros And Cons Of Holding Mutual Funds In Demat

Holding mutual funds in demat form

Today, investors have the option of holding mutual funds in demat, even for open-ended schemes. You can choose between the traditional statement (non-demat) mode or hold your mutual fund units in your demat account, alongside your equity shares, ETFs, and other securities. This allows for a more consolidated view of all your investments. 

It is worth noting that mutual funds are already held in non-physical form, and the statement provided by the AMC or registrar serves as proof of ownership. The benefit of holding mutual fund in demat form is that it simplifies portfolio tracking and streamlines the investment process by keeping everything in one place.

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Table of Contents

1. Holding mutual funds in demat form
2. Benefits of holding mutual funds in demat form
3. Disadvantages of holding mutual funds in demat form

Benefits of holding mutual funds in demat form

Here are the benefits of holding mutual funds in demat form:

All investments in one place

You can view your mutual funds, stocks, and ETFs together in one demat account, making it easier to track everything. This is a key benefit of holding mutual fund in demat form.

Easy to buy and sell

Buying and selling mutual funds becomes faster and more convenient through your trading account, just like shares.

Less paperwork

With Holding Mutual Funds In Demat, there's no need for separate account statements from different fund houses—everything is managed digitally in one account.

Disadvantages of holding mutual funds in demat form

Holding mutual fund units in demat form, also has some downsides to it. Here are few of the disadvantages outlined.
 
Transaction Charges

When you hold mutual funds in a demat account, you may have to pay transaction or annual maintenance charges, which are usually not applicable in regular mutual fund accounts.

Limited Access to Features

Some features like Systematic Transfer Plans (STPs) or switching between schemes may not be available or are harder to manage in demat mode compared to direct holdings through AMCs.

Dependence on Broker Platforms

You need to rely on your broker or depository participant for all transactions, which may reduce flexibility and control over your investments compared to using an AMC or mutual fund platform directly.

To sum it up, holding mutual funds in demat account does have some merits, but it also leads to a loss of flexibility and also results in higher cost due to absence of Direct Option. At the same time, it must be remembered that even when you hold the mutual fund units in statement mode, there is no physical paper involvement and it is already in non-physical mode only.