Can you buy Mutual Funds in DEMAT form? The answer is yes. It is not mandatory. In fact, more than 96% of units are in physical form (Non-Demat). But yes, the facility to buy, sell & hold mutual fund units is available. Let us see how this can be done. Also we will check the advantages (& disadvantages) of keeping the mutual funds in DEMAT form.
Difference between Mutual Fund Units in Demat Form & Units in Physical Form
Mutual Fund Units in physical form are represented by Statement of Account. You can convert this Statement of Account into dematerialized form in your demat account with any Depository Participant (DP) of NSDL or CDSL.
You can use the existing demat account to convert the Mutual Fund Units. There is no separate Demat required.
So, in case you do not have a demat account, and wish to hold Mutual Fund Units in Demat form, you will be required to open a demat account with any Depository Participant (DP).
Advantages of Holding Mutual Fund Units in Dematerialised form
You can hold securities such as equity, debt instruments, Government securities, and Mutual Fund Units in a single demat account.
You will receive a single transaction statement from your DP, which will display all the securities and Mutual Fund Units held in your demat account.
Change in address recorded with DP will get registered electronically with all companies / Asset Management Company (AMC) / Registrar and Transfer Agent (RTA) in which you hold securities / Mutual Fund Units. Thus, eliminating the need to correspond with each of them separately.
You can view the latest balances and transactions that have taken place in your demat account through one internet login facility.
You will also receive SMS alerts upon debit and credit of Mutual Fund Units in your demat account.
How to Buy Mutual Funds in DEMAT form?
New Units:
One can buy units through his Equity Broker. Most people do not do as Equity Broker is not your Mutual Fund Advisor. So, while buying units through physical form, you can mention DP ID & DEMAT number in the application form. Units will be allotted in the DEMAT form and will be credited in your DEMAT account instead of physical unit allotment.
For Existing Units:
You need to follow the procedure for converting the Mutual Fund Units (represented by Statement of Account) into dematerialized form through your DP. The steps are:
- Obtain 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 MF company / RTA.
- The MF / RTA after due verification will confirm the conversion request and the Mutual Fund Units in your demat account will be credited.
Non-Resident Indians (NRIs) can also convert the Mutual Fund Units held under NRI status into dematerialized form. The demat account is opened under the NRI category for this.
What is ISIN (International Securities Identification Number)?
ISIN is a unique 12 Digit Alpha-numeric number assign to a scheme. All stocks MF schemes have it. Demat recognize the scheme through this number. For Eg,
Scheme Name: DSP Blackrock Equity Fund – Regular Plan – Dividend Payout.
ISIN: INF740K01011.
The ISIN details of the Mutual Fund Schemes held by you can be obtained from your DP or his website.
Units Holder Pattern in DEMAT
What if the name and pattern of holding in your demat account are different from the name and pattern held in Statement of Account? Example; demat account is in the names of Y and Z and the Statement of Account is the names of Z and Y.
The name and pattern of the holding must be same in demat account and Statement of Account. One will have to open different Demat Accounts as per patterns of Holding in Mutual Funds. This is a serious drawback for a large family.
How to Redeem Mutual Fund Units held in DEMAT account?
You can redeem your Mutual Fund Units held in dematerialized form through two different modes i.e., through your DP or Stock Broker.
Other Facilities when you hold Mutual Fund Units in Demat Form
The nomination present in a demat account will also be applicable for Mutual Fund Units held in that demat account.
You can transfer Mutual Fund Units from one demat account to another demat account. (This feature can be used to Gift MF units. This cannot be done in physical unit format)
Should You Hold or Convert YOUR MF Units in DEMAT form?
One should only demat his units if he is going out of the country for a long time and will not trade during this period.
The problem with DEMAT units is CONTROL.
Ideally, investors have different people for Stocks & MFs. So, when it comes to MF advisor, the units are not in his control for transactions.
So, if you want to sell or add more, the transaction needs to go through the equity broker. This adds one more level.
Stockbrokers do not understand MFs. They will either mishandle such transactions or will put their own “advisory”. You can imagine what happens when 2 people handle one issue.
Also, the funds after selling come to DP first, then it can be requested by an investor to transfer in bank account. It again takes more time.
So through managing MFs through DEMAT gives you the ease of managing paper statements but, it is equally challenging for an active investor.
Also, when you manage physical units, now MF advisors provide you online tracking & transaction facilities. Hence paperwork has been minimized in holding physical units also.
I hope you like this article.
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