Holding mutual funds in SoA or demat: Which is better?

Mutual fund units can be held either in the traditional Statement of Account (SoA) mode or in a demat account. With SWP and STP facilities now available for demat-held units, a key difference between the two modes has narrowed. A look at how the two modes differ and which is better for investors.

WHAT IS THE DIFFERENCE BETWEEN HOLDING MUTUAL FUNDS IN SOA AND DEMAT FORM?

In SoA mode, mutual fund units are held with the asset management company (AMC), with the registrar and transfer agent (RTA) maintaining the records and issuing statements to investors. In demat mode, the units are held in the investor’s demat account through depositories such as NSDL and CDSL, alongside securities such as stocks, ETFs and bonds.

WHAT ARE THE ADVANTAGES OF HOLDING MUTUAL FUNDS IN SOA MODE?

SoA is generally simpler for investors whose investments are largely restricted to mutual funds. Investors do not need a demat account merely to hold their MF units and therefore do not incur demat-related account charges. Investors can also transact and service their investments directly through AMCs and RTAs. This can make purchases, redemptions and other service requests relatively straightforward, particularly for investors with no requirement to hold stocks, ETFs or other securities in demat form.

WHAT ARE THE DISADVANTAGES OF HOLDING MUTUAL FUNDS IN DEMAT FORM?

Investors may have to pay demat account maintenance and other charges, making it less attractive for those who do not otherwise use a demat account. Also, since the units are held in demat form, certain transactions and service requests must be routed through the depository participant rather than directly through the AMC or RTA.

CAN INVESTORS SHIFT FROM SOA TO DEMAT AND VICE VERSA?

Yes. Mutual fund units held in SoA form can be converted into demat form by making a dematerialisation request through the depository participant. Units held in demat form can similarly be converted back into SoA form through the rematerialisation process, subject to the prescribed procedure.

Investors therefore do not have to treat their initial choice as permanent.

SO, WHICH IS BETTER — SOA OR DEMAT?

SoA may be simpler for investors who primarily invest in mutual funds, as it avoids demat-related costs and allows them to deal directly with AMCs and RTAs. Demat may suit those who also own stocks, ETFs and bonds and prefer to manage all investments in one place. With SWP and STP now available for demat-held MF units, the convenience gap between the two modes has narrowed.