Holding demat units

In our last series we discussed how funds can be bought online. Mutual funds can only be held in demat form and transacted through the depository participant. Here's how.

What is a demat account?

A demat or dematerialised account is one which enables the investor to hold the units in electronic form rather than physical. A demat account is just like a bank account which holds shares or units of a mutual fund. To open the demat account an investor has to approach a Depository participant (DP) and fills up a form.

A depository participant is one who holds the investor's records in dematerialised form and receives all trades for buying and selling. The DP then opens the account and allots an account number and a DP ID number. This number needs to be quoted wherever the units need to be credited to the demat account. The biggest advantage of a DP is that an investor can hold his complete portfolio of shares and MF units in one account, in electronic form.

For example, if an investor has investments in UTI Mutual, HDFC Mutual, Kotak Mutual and ICICI Pru Mutual, then all his holdings can be held in one single demat account instead of holding physical statement of each investment

There are four major charges involved in opening and maintaining a Demat account: a) account opening b) annual maintenance c) custodian fee d) transaction fee. These charges vary from one DP to another.

Can units be transferred to demat account?

Yes, the units of a mutual fund can be transferred to the demat account. The process is very simple. If you do not already hold a demat account (used for transacting stocks), then you need to open one first. The investor then needs to fill in the dematerialised request form (DRP) to his DP. This form needs to be filled in and submitted to the DP along with the physical statement of account that is issued by the mutual fund .

The DP account and the holding of the units must have the same names and mode of holding. The DP then acknowledges the receipt and sends this to the Registrar & Transfer Agent (RTA), who then proceeds to convert the physical units to demat form by noting in their books and intimating to the relevant exchange.

The exchange notifies the DP and the DP in turn credits the investor's account with the units.

While submitting for conversion the investor must ensure that the mode of holding is the same, there is no lien on the units and that the form is correctly filled and signed by all the holders.

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