The portfolio of an average retail mutual fund investor is usually a mix of ELSS plans, equity funds and debt funds from four to five fund houses. Keeping track of the paperwork for all these investments can be an onerous task. So, what's the alternative? All mutual fund houses allow investors to view their accounts online, but one needs to log on to individual sites to do this.
Wouldn't it be convenient if one could consolidate all mutual fund holdings in one account? This is possible if you dematerialise your mutual fund units and transfer them to your demat account.
The procedure might seem a little complicated, but once you are through with it, it can ease your work considerably. An investor needs to fill up a conversion request form (CRF) and submit it to the depository participant (DP), along with the latest statement of account from the fund house. Separate applications have to be submitted for each folio. The DP will verify the records and forward the conversion applications to the fund houses.
If there is no mismatch in the information, the fund house will credit the investor's holdings to the demat account mentioned in the form. Right now, this facility is being provided free of cost.
The biggest benefit for the investor is that he gets a consolidated view of all his holdings across stocks and mutual funds at one point—his demat account. It makes monitoring various investments a lot easier because you no longer have to check multiple statements of account from different fund houses.
One can check the latest balance and transactions across all mutual funds, along with the valuation of their holdings at current NAV through NSDL's Internet-based facility, IDeAS.
You get a consolidated view of holdings and valuation across all schemes.Paperless transaction and no documentation needed.Simplifies the nomination and transfer of units.Single entity to be notified in case of change in details.This consolidation also helps if the investor changes his address. "Instead of multiple applications to different fund houses requesting a change of address, the investor has to give just one application to the DP," says Dhirendra Kumar, CEO of Value Research.
This applies to nominee details as well, which continue to be valid once the mutual fund units are dematerialised. While it is easy for investors who have the same set of nominees for all investments, it may be a problem for those who have separate nominees for different holdings. In such a case, they need to change these details in the demat account.
Before you decide to convert your units, keep in mind that this convenience comes for a cost. Opening a new demat account means additional cost in the form of annual maintenance charges. These can vary from Rs 300-500 a year. You will also need to open a trading account with a brokerage house.
Then there are the transaction charges. Currently, most stock brokers do not charge any brokerage fee for buying mutual funds through them, but you need to confirm this with your broker. The DP also levies a charge. Each time a security moves out of your demat account, you need to pay a fixed charge of Rs 20 per transaction.
Cumbersome procedure to convert units to demat.Additional costs for maintenance and transaction.All schemes are not available with brokers for sale and purchase.If you sell mutual fund units worth Rs 10,000 from five different schemes, you will end up paying Rs 100 as demat transaction charges. All these layers of charges are a needless burden on investors, who could go through their advisers or fund houses to make investments.
Given these costs, opening a demat account purely for transacting mutual funds does not make sense. Says Deepak Thakwani, a CFP and founder, Yes Investments: "Unless you want the benefit of viewing all your holdings in one place, it doesn't add any value."
Trading units in demat form
Once you have received your units in the demat account, you can buy and sell mutual funds just like stocks. The only difference is that the price will be defined in the same way as mutual fund investments. You can place a buy order by mentioning the purchase amount and mutual fund scheme through the stock exchange. The units will be credited directly to your demat account by the broker.
For redemption of the units held in the demat account, one can approach either the broker or DP. In the case of the former, investors can place an order for redemption (mentioning the number of units to be redeemed) with the broker. The proceeds from the sale will be credited directly to your bank account by the fund house or the registered transfer agent. For redemption through the DP, you will be required to fill up the redemption form and submit it to the DP. It will be verified by the transfer agent and the money credited to your bank account.
HOW TO CONVERT TO DEMAT
Get conversion request form and submit to your DP, along with account statement.After verification, the DP will send the application to the fund house or the transfer agent.If found okay, the fund house will confirm the request and then credit the units to your demat account.
One major drawback is that all brokers, especially small outfits, don't offer trading in mutual funds. Since all brokers do not offer all mutual fund schemes, you may find that the scheme you choose is not available with your broker.
Despite these glitches, some people believe that the facility will find acceptance among investors. Says K Venkitesh, national head, distribution, Geojit BNP Paribas: "This system has a lot to offer in terms of convenience. You will find the facility taking off soon," he asserts.
This doesn't mean that all mutual fund investors who have a demat account for equity transactions should consider this option. Vineet Arora, senior vice-president and head, product distribution, ICICIdirect asserts, "Before taking the final decision, investors should weigh the benefit of getting a consolidated view of their holdings against the added cost of going through the demat route."
Kumar believes that if a large number of mutual fund investors shift their holdings to the demat form, it will reduce the operational costs of fund houses. They spend heavily on generating account statements and on postage and delivery of statements to investors. "If fund houses pass on these savings to the broker or investor, the transaction charges could be brought down," he says.
Source: Economic Times
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April 7, 2011