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Mutual Funds

Mutual Funds and Demat Fallacies

Some advertisements recently give the impression that you can "Demat" your mutual funds! Yippee! So you should buy through a stock broker on an exchange!

But this is a stupid reason.

Mutual funds are "dematerialized" anyway.

Materialized means that the unit certificate that you have is the be-all and end-all of your ownership; in the past, shares were sold as certificates. When you sold, you gave your certificate to the broker, who would find a way to get it over to the new buyer. If you lost your certificate, you were in deep doo-doo. You had to file an FIR and hope you had a photocoyp and beg and plead and offer your children as guarantee to get your shares back. Many instruments – NSCs for one – are like this.

Dematerialized means what you get in paper is an account statement, that your holdings are really maintained electronically. If you lose your statement, no big deal, you just call them and they send you a new one. You might need some details, but usually they can find your holdings with a PAN number nowadays. Shares are now usually held in demat mode, with demat "depositories" like NSDL and CDSL accounting for a major part of all share holdings in India.

Mutual funds are dematerialized anyhow. Even if you buy through your neighbourhood agent. Mutual fund "registrars and transfer agents" like CAMSOnline keep an electronic record. If you lose your certificate, nothing is lost. You can still redeem, buy more, get dividends etc. You don’t have to buy through a stock broker. Buying through a stock broker makes your holdings go into your demat account.

To understand, visit www.camsonline.com and click on "online services for investors". As for an ActiveStatement, given only your email id. You will get an account of all CAMS maintained funds that you have ever bought in history, just like that, on email.

Stock brokers charge 0.50% for buying and selling funds. Further, most demat accounts have a fixed cost per year (about Rs. 400) and then they charge you Rs. 15 or so per transaction. That’s idiotic at various levels because selling or holding mutual funds comes with next to no risk to either of them, but they choose not to reduce the cost for you. Thieves.

Today, a local agent is cheaper – your cost to go with him is Rs. ZERO, since there’s no entry load. You would be much better served by doing that or hey, buying directly from the mutual fund itself. Don’t fall into some stupid argument by companies which throw money at advertisements, that owning mutual funds in demat accounts is better. It is not.

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