Mutual Fund Investment Through This Route May Be Pricier For Some Investors
For investors who do not already have a trading account, this route may be slightly more pricey for mutual funds. Investing via demat account will have annual charges and lack of certain facilities.
Reaching a destination on time has become more than a simple commitment with the testing traffic in metro cities. One can only decide if they would rather sit in traffic on the shortest route or taker a longer route that is a freer drive.
Similarly for investments, there are channels that new investors can choose to take to invest. Specifically for investing in mutual fund units, one of the options is to invest through a demat account.
For those who already have a demat account, this method will work just fine. But for investors who do not already have a trading account, this route may be slightly more pricey.
Four Drawbacks Of Demat Holdings
"Firstly, there is a brokerage that you need to account for. Depending on your demat account's depository participant, one has to look at the brokerage they charge for buying, selling and holding," said Amol Joshi founder of PlanRupee Investment Services.
Investing via a demat account will have annual charges that need to be paid apart from the brokerage as well. Another issue with the route for new investors is the lack of certain facilities.
"Facilities like SIP, STP and SWP are not available for mutual funds held via demat account," said Joshi. What this means is some of the options available for investing, transferring and withdrawing will not be available.
Further, there are certain disadvantages with regard to nominees as well.
"In other routes, you can have different nominees for different units. For demat accounts. there is one set of nominees who will be eligible for all the mutual fund holdings," he said.
The information that investors receive also varies based on the channel chosen. There will be some calculations that will need to be taken care of in this route.
"You will not get a statement of account like you would when you hold units in mutual fund format. There will not be a capital gain and capital loss statement issued. You'll have to account it for yourself or your DP will provide it for you," said Joshi.
Who Should Take This Route?
Despite the drawbacks, this route might actually work well for some investors. Essentially, if the investor already has a trading account, then the disadvantages do not measure up to much.
"There is no advantage or disadvantage if you already have a demat account. Ultimately if you want to sell, if it's in demat form, you can redeem your investments. Either ways, liquidity is not a concern," said Pankaj Mathpal, managing director of Optima Money Managers.
In fact, if investors are looking to invest in ETFs, this route might work best. For investors with trading accounts, holding all their investments via the account will help them see it all in one place and track them better.
