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