I have a demat account. But I want everything to be in single portfolio? Is it the best way to buy mutual funds through the demat account or directly from the respective Mutual fund companies? But if I buy through different Mutual Fund companies, I will not have all my investments in one place in a single portfolio. This article talks about Mutual Funds and Demat account.
Table of Contents
Demat Account
A Demat account enables you to buy shares or stocks and keep them in a secure online location. An online trading account is essential if you need to buy and sell shares. A trading account is generally linked to your bank account for seamless transactions. To understand the difference between a Demat and trading account, you may want to click here to know the unique benefits and features between the two.
The purpose of a Demat account with any reputed depository participant or broker such as Kotak Securities is to ensure you do not hold the physical form of shares or certificates when redeeming them.
A Demat account is essential for stock market investment. But you can buy and organize all your investments such as shares, sovereign gold bonds, mutual funds and more.
If you are looking to buy or sell mutual funds, it is not compulsory to hold a Demat account.
Mutual Funds and Demat account
You can hold mutual fund units in the same demat account through which you buy/sell shares. It means you can buy/sell mutual fund units electronically and track all your capital market investments in a single statement.
You can also convert mutual fund units into demat form by submitting a conversion request form which you can get from your broker or depository (NSDL or CDSL).
After verification, the depository will send the form to the asset management company or its registrar and transfer agent, or RTA, which will confirm the conversion request after verification.
After conversion, all subscriptions/redemptions will have to be routed through the broker. The broker will buy units on the stock exchange platform and credit them to your demat account.
You may not have the option of a systematic withdrawal Plan (SWP) or SIP facility for mutual funds in a Demat account.
You cannot buy direct plans of Mutual Funds through Demat.
Redemption is possible through either broker or depository. You can send a redemption request form to the depository, which after verification will send the request to the fund house and its RTA. The fund house or the RTA will pay to a brokers’ pool from where the money will go into your bank account.
A depository works as a safekeeper of securities and settles transactions between different parties in the capital market. An RTA processes application forms, redemption requests and dispatches account statements to mutual fund unit-holders.
Although you have the convenience of transacting in stocks, mutual funds and other investments in a single platform through a Demat account, you can purchase mutual funds without a Demat account. You can buy and sell mutual funds by directly contacting the mutual fund company such as Asset Management Company (AMC) or through an intermediary such as a distributor.
Video how to buy Mutual Fund Units through demat account
Converting Mutual Fund Units into dematerialised form
Procedure for conversion of Mutual Fund Units into dematerialised form through your Depository Participant (DP)
- Obtain the Conversion Request Form (CRF) from your DP.
- Fill-up the CRF.
- Submit the CRF along with the Statement of Account to your DP.
- After due verification, the DP would send the CRF and Statement of Account to the Asset Management Company (AMC) / Registrar and Transfer Agent (RTA).
- The AMC / RTA after due verification will confirm the conversion request executed by DP and the mutual fund units will be credit in your demat account.
Redeeming your Mutual Funds Units
You can redeem your mutual fund units held in dematerialised form through two different modes i.e., through your DP or stock broker.
(a) Redemption through DP
- Obtain Redemption Form (RF) from your DP.
- Fill-up the RF form and submit it to your DP.
- After due verification, your DP will execute electronic redemption request, which will be electronically forwarded to the AMC / RTA.
- The AMC / RTA will verify the redemption request and if in order, confirm the electronic request and make the payment as per your bank account details available in your demat account.
(b) Redemption through stock broker
- For redemption purpose, in addition to placing order through your Stock Broker, you will have to submit delivery instruction slip (DIS) to your DP to transfer the mutual fund units to a designated CM Pool account of National Securities Clearing Corporation Limited(NSCCL) / BOI Shareholding Limited (BOISL). The designated CM Pool account of NSCCL and BOISL are given below for your information:
Sr. No. Stock Exchange Name CC Name CM BP ID Market Type Pay-in deadline 1 National Stock Exchange NSCCL IN565576 Normal Redemption
Liquid Redemption
MFSS T+24.30 PM on Trade day (Order Day) 2 Bombay Stock Exchange Limited ICCL IN640016 Mutual Fund Redemption - NSCCL / BOISL will credit the requisite funds in your Stock Broker’s Clearing Bank account through usual settlement process for onward payment to you.
Advantages of Investing in Mutual Funds through Demat
Investing in mutual funds through a Demat account comes with specific fees and charges. You may not have the option of a systematic withdrawal Plan (SWP) or SIP facility for mutual funds in a Demat account.
However, having a Demat account offers numerous benefits.
- It gives you a central location to hold all your investments including mutual funds, in one place. On the other hand, online platforms also offer consolidated viewing of mutual fund portfolios without annual fees. This appears to be a better proposition for investors than holding mutual fund units in a Demat account. Now days even NSDL provides a single detailed statement of all your stock and mutual funds holdings, CAMS issues Consolidated Account Statement every six months (CAS) which carries all the holdings and that too with details of different holdings patterns.
- It comes with various features and advantages not otherwise seen when physically storing a record of finances.
- Moreover, every time you transact, your Demat account is instantly updated without manual intervention. And there are no chances of physical damage or loss; Demat account has made holding investment certificates secure and safe.
- Another added benefit is that you can freely transfer mutual fund units to nominees or legal heirs. However, this facility is not applicable in the case of tax saving mutual funds that have a three-year lock-in period.
However, transactions through brokers involve a yearly demat fee and a brokerage every time you transact. The brokerage could be more than 0.05 per cent per transaction.
Requirements for Investing in Mutual Funds without a Demat account
Majority of investors transact in mutual funds without a Demat account through a personal financial advisor, bank, or third-party tools. To invest in mutual funds, you require:
- A bank account
- KYC compliance
Online platforms, which offer click-of-mouse transactions and consolidated viewing of portfolios, that too without any annual fee, can be a better option than holding units in demat account.
If you are looking to invest with a planned approach, keeping in mind calculated costs, it is a good idea to seek professional advice and financial management planners.
