Moneycontrol
Feb 17, 2017 03:43 PM IST | Source: Moneycontrol.com

Do you know this about using demat facility for investing in MF?

One of the conditions related to the demat account is the charge that would be incurred in the maintenance of the demat account.

Arnav Pandya

The facility of demat accounts is available for investing in mutual funds but there are questions in the minds of investors as to when these should be used. The right conditions need to be present to enable investors to ensure that they are able to make the best out of the situation. Often the addition of the demat option to investing might complicate the matter further for investors as it would bring in a new route for investing that might make the work tougher for them. This is the reason why attention should be paid to the issue of the conditions under which the demat can be used for holding mutual fund units.

Already existing account

One of the conditions related to the demat account is the charge that would be incurred in the maintenance of the demat account. Opening an account just for mutual funds and then transacting in them would mean that the charges which include the annual maintenance charges plus the transaction costs would be incurred on the investment. On the other hand if there is already a demat account that is being held and used for the purpose of buying stocks then the costs for the maintenance are already being incurred. In such a situation the investor just has to look at the extent of the transaction costs that would be incurred and then make the decision. Thus if there is a demat account already present then it would ensure that a part of the costs would not be additional and hence it would be prudent to use this.

Consolidation

If the investor wants to ensure that there is a consolidation of the holdings at a single place so that they can look at this in a proper manner then it would be beneficial to use a demat account for the purpose of holding mutual funds. This would bring all the holdings at a single place at a considerably lower effort and this would be beneficial for the investor. At the same time the investor should be able to buy the units and get them credited to their demat account because if the investor does not have access to this facility then having a demat account is useless. Knowledge of the manner in which the investor would be able to transact and buy and sell the units are important for them to complete the investment process. But if there is a need for consolidation of the holdings for easy management then the demat route is the way to go.

Direct option and advisory

The investor who is looking to invest through the demat account also needs to have a couple of other factors present which will make the investment decision easier. The first is that they need not be looking for the direct option because using the demat account to get the direct option is going to be difficult. This will mean that the investor would have to be satisfied with going in for the normal option for investment where the expenses are slightly higher than the direct option. At the same time there might not be any advisor available to them unless their broker is the advisor and they buy the units using their brokerage account. This condition can be a bit of a disappointment because the investor might want personal advice which they might be getting by using the normal way of investing in mutual funds. However they might have to look for alternatives in the whole situation and this could turn out to be a problem area especially for those looking for this service.
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