Investors in India can hold mutual fund units in two formats: a statement of account (SOA) with the asset management company (AMC) or a demat account with a depository participant (DP) such as Central Depository Services Ltd or National Securities Depository Ltd.
The choice influences how easily you can transact, the features available and the overall cost of holding investments.
How units work
When you invest in a mutual fund, the money goes to the AMC. At the same time, the transaction details are sent to a registrar and transfer agent (RTA).
RTAs verify investor details, allocate units and store the records in their system. This is the SOA format, where your holdings are maintained directly with the mutual fund.
If units are held in demat form, the RTA forwards the holding details to your depository participant, which manages the account.
The investment platform you use typically determines the format.
Fintech platforms such as Zerodha and Upstox hold mutual fund units in demat form. Groww, one of India’s largest investing apps, made demat the default for all new mutual fund purchases from June 2025, unless users opt out. Existing investments can continue in SOA format.
Investors can also buy funds directly through an AMC’s website or via the Mutual Fund Utilities platform. Both routes store units in SOA format.
Feature gaps
Demat holdings currently do not natively support systematic transfer plans (STPs) or systematic withdrawal plans (SWPs).
An STP allows investors to shift money from one fund to another within the same AMC without redeeming units. An SWP allows investors to withdraw money at regular intervals. Both features are widely used by retirees and investors managing cash flows.
A recent consultation paper by Securities and Exchange Board of India has proposed enabling STP and SWP transactions for mutual funds held in demat form, although the rules have not yet been finalized.
Another limitation is portability. If mutual funds are held in demat form, redemptions must be made through the same broker or platform.
With SOA holdings, investors can transact through multiple channels—including the AMC website, MFU or other investment platforms—giving them greater flexibility.
SOA also has a cost advantage.
Maintaining an SOA account is free, while demat accounts may involve account-opening charges, annual maintenance fees and transaction costs depending on the broker.
Demat benefits
Despite these limitations, demat accounts offer some advantages.
They allow investors to hold multiple asset classes—shares, bonds, exchange-traded funds and mutual funds—in a single account.
A single nomination also covers all assets in a demat account. In contrast, SOA holdings require a separate nomination for each folio.
Mutual fund units held in demat form can also be pledged as collateral to obtain margin loans from brokers, a feature sometimes used by active traders.
Investor takeaway
For most long-term investors, the SOA format remains the more practical and cost-effective option.
However, investors who trade frequently, invest in ETFs, or prefer managing all financial assets in a single account may find the demat format more convenient.