The convenience of keeping all of one’s investments in a single demat account is appealing. This is possible in the case of one’s mutual fund (MF) holdings too. By converting your MF units to demat form, you can view and manage all your capital investments in one place.
All you need to do is submit a conversion request form (CRF), obtained from your depository participant (broker) for your existing investments. The asset management company, after verification, will confirm the conversion request. But before you set out to fill your CRF, there are certain things that you should know. Read on to find out.
KYC and nomination
By having the MF units in a demat form, one can check all MF holdings and investments such as stocks and bonds in a single window. Investments/ redemptions of MFs and buying/ selling of stocks can be made with a single registered bank account. In case of new investments, there is no need to submit KYC documents with each fund house.
Further, any changes to the basic details such as address, e-mail ID and, more importantly, nomination, once made, will apply to all investments in the demat account. However, a single set of nominations can be a limitation for investors intending to bequeath different MF folios to different heirs.
Costs involved
As far as the costs are concerned, though the process of dematerialisation can cost you, the maintenance of a demat account should not, in most cases. As per SEBI’s circular on Basic Service Demat Accounts (BSDAs) applicable from September 1, if the value of holdings in the demat account at any point of time does not exceed ₹10 lakh (₹2 lakh earlier), then the account qualifies for concessional annual maintenance charges (AMC). If the value of holdings does not exceed ₹4 lakh (₹50,000 earlier), brokers are not supposed to charge any AMC. If the value of holdings does not exceed ₹10 lakh (₹2 lakh earlier), the maximum AMC that brokers can charge is ₹100. Accordingly, most new-age broking platforms have started offering free demat accounts with zero charges for account opening and annual maintenance.
SWP, STP
One of the big disadvantages of having MF units in the demat form is that the investor cannot opt for SWP (Systematic Withdrawal Plan) or STP (Systematic Transfer Plan). Thus, it may hinder the investor in proper financial planning. For example, in a super bullish stock market, one may plan to invest the lump-sum in a debt liquid fund and opt for STP to an equity fund at regular intervals. This may not be possible if the liquid fund units are in demat form.
In our research, we were able to notice certain MF aggregators offering the SWP option. Nevertheless, this should not be a deal-breaker for investors who can manage SWP/ STP manually.
Lock-in period
This apart, if an investor decides to switch to another demat account, transferring of schemes with a lock-in period, such as ELSS (equity-linked saving schemes), may become a problem. All the holdings, such as stocks, MF units and bonds, generally get transferred to the other account. However, restrictions on transfer of units of ELSS during the lock-in period will apply as per the ELSS guidelines.