Demat Account vs Statement of Accounts
According to the Association of Mutual Funds in India (AMFI), the mutual fund industry in India has experienced remarkable growth, increasing from Rs 10.06 trillion on 31 July 2014 to Rs 64.97 trillion on 31 July 2024. As this industry expands, investors have the option to hold their investment in mutual fund units in one of two ways: either through a dematerialised (demat) account or via a Statement of Account (SoA).
In this blog, you will get to know the difference between a demat account and SOA in mutual funds, helping you decide which one is suitable for you.
Understanding Demat Account
A demat (dematerialised) account is where you can store financial securities like shares or bonds in electronic form. This account replaces the need for physical certificates, making it easy to trade and transfer shares. Similar to a bank account that holds your money, a demat account holds your shares and securities digitally.
With a demat account, you can buy or sell units based on quantity rather than rupee amounts. One must note that the value of these units can change daily due to market conditions.
For instance, if you own 10 units valued at Rs 10,000 today, their value might increase to Rs 12,000 or decrease to Rs 8,000 tomorrow because of market fluctuations. Therefore, it is crucial to keep an eye on market trends when trading units.
What is Statement of Account (SOA)
Mutual fund companies provide a document known as the Statement of Account or SOA in mutual fund investments, which outlines an investor's transactions and holdings. This record is sent regularly, either in physical or electronic forms, and summarises all transactions over the period, including purchases, redemptions, dividends received, and the current value of the investments.
With an SOA, managing your mutual fund investments is similar to handling a bank account. You can redeem (withdraw) your mutual fund units by specifying the exact rupee amount you wish to withdraw.
For example, if you want to withdraw Rs 10,000 and each unit is worth Rs 100, you would redeem 100 units. This approach clearly shows how much money you will get when you redeem your units.
Comparison of Demat vs Statement of Accounts
Here is a table giving a comparison of Demat vs Statement of Accounts for managing mutual fund investments:
|
S.No. |
Parameters |
Demat Account |
Statement of Account (SOA) |
|
1. |
Format |
Electronic and similar to how shares are held digitally |
Traditional and paper-based document |
|
2. |
Issuance |
Managed by depositories (CDSL or NSDL) |
Issued periodically, either quarterly or annually, by the AMC |
|
3. |
Fees and Charges |
It may involve account opening fees, annual maintenance charges, and transaction fees |
No maintenance fees, generally free to maintain |
|
4. |
Asset Holding |
Can hold a range of assets like shares, bonds, ETFs, and mutual funds |
Only mutual fund units |
|
5. |
Content |
Consolidates all holdings electronically in one place |
Includes investor's name, folio number, transaction history, unit holdings, NAV, and overall valuation |
|
6. |
Accessibility |
Online access to statements and transaction history anytime |
Mailed to the registered address or available for download from the AMC's website |
|
7. |
Transactions |
Facilitates easy online buying, selling, and switching of mutual fund units |
Requires manual handling for transactions |
|
8. |
Redemption |
Buy or sell units only in terms of whole units |
Redeem units by specifying the amount in rupees |
|
9. |
Suitability |
Suitable for active investors needing seamless online transactions |
Ideal for investors preferring physical records or those who do not frequently trade |
|
10. |
Ease of Transfer |
Single nomination covers all assets and easier transfer of units |
Nominations and transfers must be handled individually for each AMC |
|
11. |
Loan Facility |
Loans against MF units can only be used for buying securities |
Loans can be taken against MF units and used for any purpose |
|
12. |
Security |
Offers high security with minimal risk of physical loss or theft but requires careful protection of digital credentials |
Physical SoAs are vulnerable to loss or damage, whereas electronic SoAs offer a more secure alternative |
Summing Up SOA Vs Demat
After learning the difference between a demat account and SOA in mutual funds, it is clear that each method has its own advantages. The SOA method is budget-friendly and offers greater flexibility when withdrawing funds. On the other hand, a demat account provides real-time tracking of your investments and simplifies asset transfers.
Choosing between these methods depends on what you value more—cost efficiency and flexibility or real-time tracking and ease of transfers. Therefore, consider what aligns best with your financial goals and investment style and decide accordingly.