Mutual funds in SoA or demat: Which holding mode works better for investors?
For investors whose portfolios are predominantly mutual funds, SoA may remain the more straightforward option
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When you invest in a mutual fund, choosing the scheme is only one part of the decision. Investors also have a choice in how they hold their units, either through a Statement of Account (SoA) with the mutual fund house or registrar and transfer agent (RTA), or in a demat account. While this choice does not affect the fund’s NAV, returns or taxation, it can make a difference to how easily you manage your investments.
For investors who primarily invest in mutual funds, SoA can offer a relatively simple and direct way of holding units. Investors can transact through the AMC/RTA ecosystem without opening or maintaining a demat account solely for their mutual funds.
SoA can also be particularly convenient for investors who use systematic investment and withdrawal facilities. SIPs, systematic transfer plans (STPs) and systematic withdrawal plans (SWPs) have traditionally been straightforward to set up and manage in this mode.
Another advantage is the flexibility to maintain multiple folios. Investors can use different folios for separate financial goals, family members or investment strategies, making it easier to organise a mutual fund portfolio.
For an investor whose portfolio is largely made up of mutual funds, this can mean fewer layers of administration and no need to maintain a demat account simply to hold the investments.
Where demat can make sense
The equation can be different for investors who actively hold several types of market-linked investments.
A demat account can bring mutual funds, equities, ETFs, bonds and other securities under one account, making it easier for investors who already use demat extensively to consolidate their portfolios.
“Demat can also offer an additional feature for certain investors: the ability to pledge eligible mutual fund units to generate margin, subject to applicable regulations and the eligibility criteria of the broker or depository participant. This can allow investors to use their investments as collateral without necessarily selling the units,” said Shubham Gupta, CFA, co-founder of Growthvine Capital.
This facility is generally not available for mutual fund units held in SoA mode.
At the same time, the gap in convenience between the two modes is narrowing. Features that were traditionally easier to access in SoA, particularly those related to systematic transactions, are increasingly being made available for mutual fund units held in demat as well.
SoA or demat: What should investors choose?
There is no inherent investment advantage to holding mutual funds in SoA rather than demat, or vice versa. The underlying fund, NAV, taxation and investment returns remain the same. The key difference is the manner in which the investment is held, administered and used.
Gupta said, “For investors whose portfolios are predominantly mutual funds, SoA may remain the more straightforward option. It offers flexibility through multiple folios, avoids the need for a separate demat account and has traditionally provided a convenient framework for systematic investing.”
Demat, on the other hand, may be more suitable for investors who already have substantial holdings in equities, ETFs, bonds and other securities and prefer to manage their investments through a single securities account. For more sophisticated investors, the ability to pledge eligible mutual fund units can be an additional advantage.
“Importantly, investors do not have to choose one mode exclusively. They can hold some mutual fund investments in SoA and others in demat, depending on their investment strategy and the features they need,” said Gupta.
Ultimately, the choice is not about which mode gives better returns. It is about which holding structure offers the convenience, flexibility and functionality that best matches the way an investor manages their portfolio.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.