THERE is an option available to mutual fund investor for holding their mutual fund units in dematerialised form. This is different from the traditional way of holding mutual fund units whereby the units are visible through an account statement. While there are benefits of holding the units in the demat form there are also some costs that will come in the process.
One has to look at the costs to see whether they are additional expenses or whether this mode of holding will give some benefits in synergy.
Here are some of the points that the individual will actually face.
Demat opening and annual charges: If the investors do not have a demat account then they will have to open one.
This can lead to some expenses at the time of opening the account.
Another charge that will have to be paid by the investors when they are using the demat account is the annual fees that are levied by the depository participant to the account holder. This can range from Rs 300 to Rs 750 for the year and it varies for each depository participant. The important thing is that this is an annual charge that has to be paid every year.
So if an investor already has a demat account and he will be using the same for the purpose of holding the mutual fund units along with the shares then there is no duplication of the charge. He would pay no extra amount.
Transaction charges: There are also often transaction charges that are levied on the investor when the units or shares move out of the demat account. This means that every time they transact there will be a small amount that will add up as charges for the investor because there is a transaction in the demat account whereby the mutual fund units have moved from the account.
The figure here can be something like Rs 20 to Rs 40 for a transaction and the investor needs to check the exact figure with their depository participant.
There are different ways in which this charge is levied and in some cases it is shown separately while in other cases this is included in the charge that the broker levies especially when the demat account is with the broker through whom the transactions are done.
Brokerage: Another expense that you will incur every time you transact using the demat route is the brokerage. This happens because the transaction is undertaken through the stock exchange by using the broker.
The only time when this will not arise is when the investor already has units in their account statement which they convert to the demat mode. Otherwise, when there is a transaction that involves buying and selling of the units when this is done using the brokers then there will also be a brokerage.
This kind of expense can be avoided in case of a normal mutual fund transaction where the individual completes the activity on his own, leading to no extra charges.
Other charges: You may have to pay many of the charges mentioned above even though you may not be undertaking many transactions. Further, other charges like exit load or contingency deferred sales charge, which are levied by the fund due to a sale of the mutual fund units before the completion of a specified time period, remains.
At the same time, the investor has to see whether his broker is levying some additional expense on him for the mutual fund transaction and this will round up the total of the charges for him to pay.
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