Statement of Account vs Demat Account in Mutual Fund

Mutual funds can be held either in dematerialized account or as statement of account which is an improvised physical holdings method. With the launch of open-ended schemes which allowed investors to redeem units in full or in partial, buy additional units as well as start with a systematic investment plan (SIP) mutual fund houses began issuing SoAs. This form of holding which is similar to holding of securities in demat form is however not exactly identical. Of late to enhance convenience and reduce paperwork, mutual fund houses have begun issuing consolidated statement of accounts.

So, how is holding mutual funds in SoA and demat account different?

Statement of Account is exclusively for mutual funds while in a demat account your financial portfolio, including equities, mutual funds, debt instruments including NCDs can be tracked all through a single platform.

SoA on the other hand gives detailed information with respect to transactions in a particular scheme, and provides all such details including the current investment value of the individual's folio, load charges etc. which are not given in a demat account. However, holding mutual funds unit in this format does not allows transfer of units as in demat account which facilitates unit transfer through the mechanism referred as off-market transfer.

So, the prime advantage of holding mutual funds in a demat account is the facility to transfer units. Even in the case when exit load applies, seller of mutual fund units is not required to pay the load. The waiver is on the grounds that when mutual funds are transferred through a demat account, units remain in the books of the fund house.

However, if the mutual funds held in a SoA account are redeemed, units from the books of the mutual fund house get reduced and hence the investor holding MF units in SoA account is required to pay exit loads.

The seller, of course, has to pay capital gains tax if the sale price of the held units is more than the purchase price. Further the capital gains tax applies in case of redemption of units from both type of accounts.

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