Benefits of holding units...In demat form

This week we attempt to explain the process of holding units of a mutual fund in demat form.

What is demat?

Demat refers to dematerialisation of investment units which would otherwise be in a physical form.

How does one go about holding mutual fund units in demat?

Any investor who wishes to convert the units to demat needs to open a demat account with a depository participant (DP). This can be a bank, or any other authorised entity which has the licence to be a depository.

How is a demat account opened?

Any investor can open a demat account by filling up the form and submitting the relevant documents such as Know Your Customer (KYC). This will be very similar to a bank account.

Is there any unique identification provided to the investor?

Yes the investor is assigned a DP and a client ID just like a bank account number. This number needs to be quoted in all the transactions that take place through the DP. .

Can an investor have more than one DP account?

Yes multiple accounts can be opened by the client.

Will the investor get an account statement like a bank passbook?

The investor will get a statement from the DP just like the bank account statement, which will show the holdings of the investor for all mutual funds if he has converted them into demat and also the number of shares that he holds (in case the investor holds both in the same demat account).

If the investor has the units in physical form what does he need to do to do convert to demat?

The investor first needs to open a demat account and then give a form to the DP for conversion of the physical units. The DP will inform the exchange and they in turn will intimate the R&T. The Registrar and Transfer agency (R&T) will then credit the units to the demat account. The DP usually charges a small fee for this activity of conversion.

How long will the process take?

The investor's account will get credited in about a week or so from the date of submission of the form at the DP.

What are the disadvantages of this?

The investor cannot get a physical statement from the fund house for his holdings as he can view them in his demat. Besides, he needs to route his transactions only through the DP and not through the fund house or the R&T.

How does the money get settled to the investor?

The R&T will send the intimation for payment in case of redemption to the AMC who in turn will credit the brokers' pool account and then to the DP account.

How does the investor subscribe to the units?

The investor submits a request to the DP who then places the request to the broker and he in turn to the AMC by crediting their pool account. This amount will be transferred to the AMC account.

What is the advantage of holding the units in demat?

All (unit) holdings will be available in one place and will provide a consolidated view of the holdings. It is easy, less cumbersome as it involves no paper storage.

(The author is CEO, Sundaram BNP Paribas Fund Services.)

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