Pros and cons of Mutual funds in demat mode

Can some one explain pros and cons of holding mutual funds in demat mode ?

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Cant think of anything you can do with mutual funds in demat that you cannot do with equal convenience on AMC website. Hence, I am very curious to know the answer too.

This may help

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So when MF units are stored in Demat accounts with decimal places, at the time of redemption, you will never be able to sell ALL units since most Brokerage sites cannot handle decimal places in SELL option. You can only SELL the units in whole numbers. Right now, I have units of various MF with balance of .113, .129 in my Demat account which I cannot sell since it is lower than minimum allowable redemption unit

This is the only one that really concerns me… is this true even today? If I hold say 100.9 units of a MF, I’ll only be able to sell 100?

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There are several benefits for holding the units in demat mode.

  1. If you have nominated someone for your demat account then the nominee would be the legal heir of all the securities that you are holding in your demat account (stocks, bonds, ETFs and mutual fund units). If you were holding the mutual fund units in non-demat form for several schemes then you would have to ensure that the nominee details are updated with each AMC or RTA.

  2. Its easier for you to take a loan against your mutual fund units from a bank or a NBFC. If the units are in non-demat form, then you first need to execute a loan agreement with your financier. The financier will write to the mutual fund registrar like CAMS or Karvy and ask them to mark a lien on a certain number of units that are being pledged. The Registrar in turn will mark the lien and a letter is sent to the Financier with a copy to the investor confirming the marking of a lien on the Units. So, taking loans against units in non-demat form turns out to be a heft process.

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You can partially redeem units in demat form, there is no such restriction. You can write to [email protected] in case you are facing any issues.

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As far as I know. It’s done for more productivity and ease in this sphere.

Is it mandatory to convert mf units into demat account? I have 5 ELSS schemes in my coin account. And conversion charges are 150 rupees on every month investment? Sorry I am not clear about the charges.

This article suggests that keeping mutual funds in Demat format, incur in additional brokerage every time you transact. Is it true?

I believe in that article they are referring to AMC charges for demat account, if one has equity account then there is nothing extra one pays, also even with out equity account I believe advantage of holding units in demat form far outweigh those charges.

In my understanding, AMC charges are included in TER (Total Expense Ratio) of the fund. AMC does not charge you anything apart from that. When you do a transaction on a Mutual Fund website, it calculates the TER and allocates the units accordingly. Also, there are no entry loads. Only exit loads that depends from fund to fund.

As per the article holding mutual funds in demat account would incur in a brokerage charges that could be more than 0.05% per transaction. Is this true?

Does that mean for every SIP there would be additional brokerage charges which would’t be there if I am investing directly on Mutual Fund website?

Anyone who is reading and has a better understanding, please enlighten us.
Thanks,

May be from other brokerage houses but from Zerodha no brokerage as such when one is buying.

and at the time of redeeming mutual funds? Are there any brokerage charges apart from exit load and STT etc?

@nithin can we have an official confirmation on this, please? It will help us make an informed decision.

Because apart from having all capital gain statement in one place, I do not see any other value in keeping in Demat format. Anyways, the mututal fund houses give you monthly statements. You also get statements from NSDL, Karvy .etc. So it is all paperless anyway.

Need to understand the pros of holding in Demat format clearly. Also, keeping with Zerodha has additional Rs 59 per month charges (Rs 50 + taxes) which is a recurring cost. While keeping with Mutual Fund house does not cost you anything extra, is paperless and as safe as Demat format.

Hence again, very specifically I need to understand the benefit of keeping in Demat format and what do you pay for it in terms of charges.

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It cost’s 5.5 rs on redemption, these are charged by CDSL, Zerodha don’t charge anything.

Can go through this.

Rs 5.5 on what? Every redemption or particular amount or unit? So this is an additional charge if one goes for Demat account? Because if you sell on the Mutual Fund Website, it does not incur any additional charges.

I am NOT looking for “why go for direct mutual fund and not a regular fund”.

I am already investing in direct mutual funds on the mutual fund websites. I specifically need to understand the benefit of holding in demat format instead of keeping with mutual fund houses online when both are paperless.

Let me ask my question in a very brutal way -
Just for having a single view of the capital gain statement, is it worth Rs 59 per month? And when keeping in Demat costs you additionally while redeeming.

Other benefits of easier to take loan against security if kept in demat, so not everyday you take loan. And when you are willing to take loan, you will go that extra mile to get it done.

So again, are there less pros and more cons of keeping in Demat format?

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Every redemption, no cap on amount or units.

Considering MFs as long term investments many won’t trade in them to incur these costs regularly.

  1. Overall better user experience.
  2. Transferring units between platforms is very easy.
  3. If someone inherited any units through demat mode then it will be hassle free process till it reach to nominee, can check with others who went through this process via non demat mode. For me on personal note this single benefit is enough to switch to demat mode.
  4. Taking loan as you mentioned is just one of the benefit.
  5. Can maintain all asset classes under one login.
  6. In future via zerodha one can use few funds as collateral also.
  7. Change of address/nominee etc would be very easy.

End of the day individual has an option to choose between demat and non demat based on his own capacity and requirements.

Buying from direct mutual fund house website (direct plans) have some other benefits-

  1. Some funds have SIP + insurance combo e.g. Reliance SIP insure, ICICI SIP Plus. Some funds have SIP anyday feature for more flexibility. These features are available only when you buy from their website not zerodha.

  2. Zerodha does not have direct SIP/STP feature yet. You are always buying in lump sum. E.g. You can’t buy SBI small cap from Zerodha which was recently reopened for SIP. You can’t invest in any fund which only accepts SIP and not lump-sum investment.

  3. Since Zerodha coin is a lump-sum buying in the background, tomorrow say a fund you’ve invested in, temporarily restricts lump-sum investments till further notice, then you won’t be able to invest in that fund anymore.

For single dashboard, you have Kuvera, Groww etc which are zero charges for investments. There also nominee facility exist that helps when you’re no more.

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In we go by this case we will be missing the big point, our goal is to not avail some insurance.

We are working on this, will take time though.

I understand it is not good to mix investment and insurance. But there are exceptions - Reliance SIP Insurance plan gives you insurance of upto 50L of your invested amount. The catch is you have to stay invested. If you break the SIP, the insurance is void. Also, at the time of redeeming, they charge 2% of the market value. Now compare this to a Regular plan. You are paying 1.5% to the distributor anyway. Some people won’t mind having one SIP insure to diversify for added coverage (apart from their term plan) as you won’t have to pay more premium every year. And treat it like it is a regular plan paying brokerage to the mutual fund house for the benefit of insurance.

Having said that, there are more examples of how investing is better with mutual fund houses than zerodha-

  • Some mutual fund websites have an incremental upgrade of SIP amount automatically. e.g. increase 10% every quarter, year .etc.
  • AMC fund changes notifications. For recent changes in attributions, I received emails from mutual fund houses. No official information was communicated by Zerodha on that topic.
  • Investing in NFO is available only on Mutual fund websites. Now also launched on Kuvera.

With limited time, I am giving this much detail only.

It’s been more than a year and this basic feature of a mutual fund is not there. I like the Zerodha platform, the graph representation, but without this basic necessity there, I don’t feel like paying Rs 59 every month for time being. It’s like you are charging me for serving half-cooked food. For single dashboard, I can see it on Kuvera or start/ stop direct SIP/STP from there. The day Zerodha makes this feature available, I would think of making a shift. Again, it is not about the Rs 59 per month. It is about the value you derive from it.

My views are not biased towards Kuvera or so. I have made investments in all three - directly on mutual fund websites, Zerodha coin, and Kuvera and so with my experience, I am having my views. Also, please note I have participated to make the user experience better for Coin with my suggestion which you can see in my profile. I do it for everywhere I invest in - be it Zerodha or Kuvera. No bias anywhere.

Coming back to the main topic, we were discussing holding mutual funds into Demat format vs keeping with mutual fund website online (both direct plans only) and the pros and cons of keeping with Zerodha as Demat format.

For now, to me, it is less of benefit and more of expenses. If you compare physical equity shares to Demat, I would choose Demat. But between holding Mutual Funds with websites, and Demat with Zerodha, I would choose keeping with mutual fund websites. Unless and until Zerodha fulfills the basic requirements of direct SIP/ STP. Until then, one has to rely on Kuvera etc.

Again, please understand the underlying business need in this conversation instead of reacting to my comments.

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You have articulated it very well.
Just the reason why I moved my MF holdings out of Zerodha.