mutual fund units: ET in the Classroom: Different methods of holding your mutual fund units

As many as 7.9 million new investors started investing in mutual funds over the last one year, taking the total number of unique mutual fund investors up to 46 million. Many more investors are likely to buy mutual funds in the coming months. Investors have an option to buy and hold their mutual fund units in their demat account or they can buy units from the fund house which does not require any demat account.

HOW DO YOU BUY MUTUAL FUND SCHEMES? WHAT IS THE WAY TO HOLD THEM?

Once you have chosen a mutual fund scheme to buy, the next step is to proceed to buy these units and execute your transaction. There are a number of ways to buy mutual funds, be it the fund house websites, RTA (registrar and transfer agent) websites, third-party platforms and stock brokers. Investors can opt for a statement of holding, or certain brokerages give you the option to hold units in a demat form. Some brokers only offer MFs in a demat form, while a few offer a mix of the two. Depending on the comfort and ease of an investor one can choose between the two. Investors who buy units in the physical form can later convert them into a demat form, by submitting a request to the depository participant and units bought in demat form can also be rematerialised back again.IS THERE ANY ADVANTAGE OF BUYING MUTUAL FUNDS IN A DEMAT FORM ?
Distributors believe one big advantage of buying MF units in a demat form is that you can get a consolidated view of your investments in one place, along with other investments. Investors often buy stocks, gold bonds, ETFs and NCDs which lie in the demat account. With mutual fund units too there, investors can get a consolidated view of their portfolio. In addition, since all investments are in a single location, it makes portfolio management simpler. Investors can monitor, track their assets, transaction history, and portfolio performance with a single statement. Another big benefit of holding mutual funds in a demat account is that it helps in streamlining the transfer of units to the nominee or legal heirs in the event of death. In the case of physical mutual units, investors will have to submit a separate set to each asset management company where you have an investment, while in a demat account, one single set of documents need to be submitted to just the depository participant.

WHY ARE INVESTORS HESITANT TO BUY MUTUAL FUND UNITS IN A DEMAT ACCOUNT ?
One of the big disadvantages is that investors have to incur additional costs related to maintenance of the demat account, which is levied by the broker. One big problem with units in a demat form is that they are serviced only by the depository and investors can’t ask queries to the fund house or transact with the fund house or the registrar. There are certain platforms that use demat which do not allow STP (systematic transfer facility) in demat accounts, which many investors look to use while staggering their investments.