Which is the best way to buy mutual funds? Through an asset management company or via a demat account?
- Sridharan
Investing through a demat account gives one the convenience of transacting in stocks, mutual funds and other financial products through a single platform. Since the mutual fund units are stored electronically, the investor does not have to maintain physical record - Statement of Account (SOA) - issued by different Asset Management Companies, or AMCs. This helps the investor to have a single view account of all the financial products.
Mutual funds of the AMCs that the demat service provider has tie up with can be bought or sold through this platform, without having to fulfill the KYC and other requirements of different AMCs separately. However, this and other conveniences comes at a cost, for e.g. annual maintenance fee, custodian fee, transaction charges for buying and selling units etc., which is over and above the fund management charges of mutual funds. These costs can have a significant impact the wealth creation potential of your portfolio over the long term.
On the other hand, if you transact through AMCs, you can invest in Direct plans. Thereby, you would not only save on the charges/fees applicable in a demat account, but also on the commission expense that you would incur by investing in Regular plans. The cost saved here will increase the amount that goes into investment, the compounding effect of which will benefit you over the long term.
However, this also means that you would have to keep track of your investments in funds from different AMCs, generate reports and make profit & loss statement for tax calculation. Though, this has now become easy, as one can not only buy and sell mutual fund units but also generate transaction statements online through respective AMCs’ website; or get it emailed. Thereby, nullifying the need to maintain physical records.
Tracking one’s mutual fund investments (portfolio) has become convenient as depository service providers like CDSL and NSDL provide a consolidated account statement on a quarterly basis, which includes stocks, mutual funds and others financial products. On demand statements of mutual fund holdings can be generated through web portals of Registrar and Transfer Agents (RTA) like CAMS, Karvy etc. Moreover, KYC requirements while investing in mutual funds needs to be done only once. Subsequent purchases of mutual fund units from any other AMCs can be done without having to go through the KYC process again.
Online portfolio manager tools, like the one provided by Morningstar can be used to track the performance of your mutual fund portfolio and conduct holding level analysis. Hence, depending on your requirements, suitability and ability, you would have to decide on investing in mutual funds, either directly through AMC or demat account.
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