Investing in mutual funds through a demat account? Know the problems you may face

While investing in MF schemes can be done with just a few clicks of the mouse through a demat account, investors may experience difficulties transacting through other modes.

Piali Chatterjee (name changed) began investing through Systematic Investment Plan (SIP) mode in a Mutual Fund (MF) scheme of one of the largest wealth management firms (AMCs) through a demat account offered by one of the largest MF distributors.

Recently, she logged into her demat account to stop the SIP. While the options for redemption, Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP) etc were available in the demat account, there was no option available to stop the SIP.

She couldn’t stop the SIP through the demat account, she tried logging into the AMC site to stop it. However, she was unable to do this.

In the meantime, she got a call from the AMC and the person tried to help her by phone to locate her folio and use the option to stop the SIP.

Under the guidance of the AMC person, Piali tried to find the folio, but to no avail. She then informed the AMC person that the SIP was started through a demat account and in response she was told that SIPs started through demat accounts cannot be stopped or redeemed through any other means, only through the demat account.

Anil Chandra (name changed) also had a similar experience, when he visited the office of another leading AMC to get an overview of his MF investment through his demat account. The AMC employee at the front desk informed him that – forget any transaction – even a statement of investments via demat accounts cannot be retrieved offline.

So while investing in MF schemes can be done through a Demat account with just a few clicks of the mouse, investors may encounter difficulties in making trades through any other mode, in the event that the Demat account is not easily accessible, or if options of some trades are not available on the demat account used by the investor, or in case the demat service provider or the custodian (DP) has discontinued the services.

“If an investor has MF shares in a demat account, the investor cannot get a physical statement from the AMC or the registrar. He/she should get a transaction summary from his DP,” said Ajay Sharma, director of InvestmentMitra.

Sharma also lists the following issues that demat account holders may face:

  • In order to sell his/her MF investments in demat form, the investor has to provide delivery notes with his/her DP, which is usually a problem.
  • For all investments bought and sold in physical form, one can get capital gains statements from the registrar. While in the case of stocks held in demat form, the investor has to keep the records himself.
  • Buying and selling investment fund units in demat form requires paying brokerage fees to the broker and transaction fees to DP in addition to the annual maintenance fees to DP.
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