Mutual funds can be held in a Demat account. You can also save them as a bank statement (SOA). In both cases it is a digital operation and there is no physical certificate as such. These are some of the most important factors to consider before deciding on your method of ownership.
Do you like ETFs?
If you want to invest in ETFs, you must use a Demat account to hold your mutual funds. You can also access ETFs through the fund-of-funds route and hold them in SOA format.
The biggest benefit of a Demat account is that you can keep most of your financial assets such as stocks, mutual funds, bonds, and gold treasuries in one account. This simplifies tracking. The consolidated return issued by CDSL or NSDL partially solves this problem if you keep the SOA form.
The main benefit of having units in SOA format is that you can transact in a variety of ways. You can submit an application for redemption of shares in the investment fund on the website or at the office of the investment fund company or the registrar and transfer agent. You can also operate through distribution platforms or on commercial platforms such as MF Utility (MFU).
If you hold Shares in a DEMAT account, the redemption request must be initiated by logging into your brokerage account. You must ensure that your Demat Account is associated with the Units assigned to you. In general, it takes a few more hours to credit mutual fund shares to the Demat account than to create shares in SOA format.
This also means that investments in the Demat account are subject to some restrictions as long as it is a redemption transaction. In principle, the investor can subscribe to a systematic investment plan and hold the shares in a Demat account. But systematic transfer schemes and systematic withdrawal schemes are not allowed when units are held in a Demat account. “Some brokers request and offer investor approval for this purpose. However, as the regulatory landscape evolves, that may change,” says an industry official who is not authorized to speak to the media.
In the case of mutual fund shares in SOA form, each folio is treated as a separate investment and may have a separate trustee. In the event of the death of the sole investor, the proxy (or legal heirs) can contact any fund company and submit the transfer request form with the required documentation.
“Sometimes they will mention the name of the beneficiary, which may be different from the nominee. Also in this case, since there is a nominee, the MF investment is first transferred to the nominee, and the nominee is responsible for transferring to the nominated beneficiary according to WILL,” says Rajat Dutta, founder, and initiator of Inheritance Needs Services. However, in the case of MF investments in physical form, if the designated beneficiary is deceased and will designate a beneficiary, the investment fund will follow an approval-based transfer process, which is mandatory regardless of the value of the MF investment, he adds.
In the event of the death of one of the co-owners of a mutual fund portfolio in the form of an SOA, the surviving co-owners gain control of the investments.
In the case of mutual fund shares held in a Demat account, upon the death of the sole investor, the designated representative for the Demat account gains control of all investments. The applicant opens a separate Demat account and contacts the custodian with a transfer request. In the event of the death of one of the co-owners, the surviving co-owners retain control of the investments.
In the case of SOA, the investor has the option of some customization by nominating different people as candidates for different folios. However, this means applicants have to deal with each fund house separately. In the case of SOA, all assets in the Demat account go to one or more nominees. The investor may determine the respective share as a percentage, but may not specify which investment goes to whom on the nomination form.
A Demat account comes with an annual fee. It varies from Rs 250 to Rs 600. SOA, on the other hand, is free. Depending on your needs, you can choose the custody format for your mutual fund investments.