Investing in mutual funds through a demat account? Know the problems you may face
Although investing in MF programs can be done with a few clicks through a demat account, investors may encounter difficulties when transacting through other modes.
Piali Chatterjee (name changed) started investing via SIP (Systematic Investment Plan) mode in a mutual fund (MF) of one of the largest asset management companies (AMC) via a demat account provided by one of MF’s largest distributors.
Recently, she logged into her demat account to stop SIP. Although redemption options, Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP), etc. were available on the demat account, there was no option available to stop the SIP.
Unable to stop the SIP through the demat account, she tried to log into the AMC site to stop it. However, she was unable to do so.
In the meantime, she received a call from the AMC and the person tried to help her over the phone to locate her folio and exercise the option to stop the SIP.
Guided by the AMC person over the phone, Piali tried to find the folio, but to no avail. She then informed the AMC person that the SIP was initiated through a demat account and in response she was informed that SIPs initiated through demat accounts cannot be terminated or traded in any other way but only through the account demat.
Anil Chandra (name changed) also had a similar experience, when he went to the office of another top AMC to get a statement of his MF investment made through his demat account. The AMC employee at the front desk informed him that – forget any transaction – even a statement cannot be retrieved offline for investments made through demat accounts.
So, although investing in MF programs can be done with a few clicks through a demat account, investors may encounter difficulties when transacting through other modes, in case the demat account is not easily accessible. , or the options of certain transactions are not available on the demat account that the investor is using, or in the event that the demat service provider or depository participant (DP) has stopped the services.
“If an investor has MF shares in a demat account, the investor cannot get physical record from AMC or registrar. , InvestmentMitra.
Sharma also lists the following issues that demat account holders may face:
- To sell his MF investments held in demat form, the investor must submit delivery slips with his DP, which is usually a hassle.
- For all investments bought and sold in physical form, one can obtain capital gains statements from the Registrar. Whereas in the case of units held in mat form, the investor must maintain records themselves.
- Buying and selling mutual fund shares in demat form requires paying brokerage fees to the broker and transaction fees to DP in addition to the annual maintenance fee to DP.