Disadvantages of holding mutual funds in Demat form


Here are some disadvantages of holding mutual funds in Demat form::

You must pay annual maintenance charges for maintaining an equity share portfolio, which is normally around Rs 500 – Rs 1,000 depending on the type of fund. Transaction charges (0.05%) are also charged on every purchase and sale. A demat account is one where you can buy and sell shares online without paying any brokerage costs.


For buying and selling of mutual funds in demat mode, the dealer has to pay the DP the shop fee and the annual maintenance fee and the transaction fee to the DP.

The fact that only one nominee can use a demat account can make the house planning process difficult. If you want to distribute your wealth to many people in different ways, it is difficult in demat account. In addition to restrictions on proxies, the downside is that demat accounts cannot be held jointly if they are held in the name of one person. There is also a limit on the number of units in the demat account. For example, if you want to hold your money together with your spouse/children but you have the same demat account in the same name, you have to open a new joint demat account. To transfer shares of a mutual fund, an investor can submit a redemption form to the broker and submit a delivery instruction (DIS). DIS is used to facilitate and facilitate the sale or transfer of funds from one account to another in the form of demat. If you are holding the same amount of money in demat form, you cannot opt ​​for the strategic transfer plan (STP) or strategic withdrawal plan (SWP). Some investors may have requirements for STP and SWP for better financial planning, such as SWP for retirees. However, Systematic Investment Plan (SIP) is allowed.

Termination of SIP

Although options like redemption, Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP) are available in Demat account, there is no option to terminate SIP. You must notify each bank of your mutual fund and deposit account every month of your intention to terminate the SIP program.

Due to the lack of technical knowledge, these demat accounts may depend on external sources to help them and they may not be trustworthy. This can lead to account holders becoming targets for online fraud because they do not demonstrate their technical skills and diligence. Also, many investors are not careful while reading the basic terms and conditions and close their demat accounts and fail to pay more. Although investing in MF programs can be done easily with a few clicks from a demat account, investors may face difficulties if they want to trade through other ways, or if their demat account is not easily accessible and the demat account they are using or a. The transaction option is not available, or if the demat service provider or its custodian (DP) ceases to provide services.


Leave a Comment