Mutual Funds
Fewer than 1 percent of Groww Mutual Fund’s customers are now choosing the traditional Statement of Account (SoA) route for mutual fund investments, according to internal sources, suggesting that once investors understand the benefits of the dematerialised (demat) format, they prefer that.
In response to evolving customer needs, Groww has rolled out demat mutual funds (MFs) as the default mode for all new investments on its platform.
While MFs were traditionally held in the SoA format, where the units are maintained by the asset management company (AMC) or registrar, Groww has now shifted to holding them in demat accounts, aligning with how stocks and ETFs (exchange traded funds) are stored.
In a blog quoting CEO Lalit Keshre, the company said that this change was born out of user feedback.
“Many investors found it frustrating to update nominee and bank details across multiple folios and AMCs. We have now introduced demat as the default mode for all new mutual fund investments,” Keshre said, adding that, “It’s the default because it offers most of our users what they need — convenience and peace of mind.”
The Securities and Exchange Board of India (SEBI) first allowed mutual fund units to be held in demat form back in 2009, to bring more transparency and standardisation to the industry.
However, adoption remained niche for over a decade, with only four major platforms including Groww, Zerodha, Paytm Money, and Upstox offering this so far.
What exactly are demat mutual funds and how do they differ from physical or SoA-based investments?
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Demat mutual funds are MF units held in electronic form in a demat account, just like stocks, bonds, or ETFs. These are stored and serviced through a central depository, NSDL or CDSL, and are accessed through a broker such as Groww.
NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) are both government-registered depositories and either can be used to hold MF units in demat form. If your broker or platform is registered with CDSL, then your mutual fund units will be with CDSL. If your broker is linked to NSDL, your units will be with NSDL. Groww is registered with CDSL.
In contrast, the SoA format records MF ownership via folios maintained by AMCs or their registrars, such as CAMS or KFintech.
CAMS (Computer Age Management Services) and KFintech (KFin Technologies) are the two main Registrar and Transfer Agents (RTAs) for mutual funds.
While SoA investments are completely digital, they are not centralised. Each AMC maintains its own folio, and investors are responsible for managing details such as bank account information and nominee assignments individually for each fund.
In the demat format, however, all mutual fund holdings, regardless of AMC, reside in one consolidated account. This means one bank account, one nominee setup, one tax statement, and a single point of access.
Functionally, the investor experiences more integration, fewer login credentials, and centralised control.
Why would an investor prefer to hold mutual funds in demat form instead of SoA?
According to Groww, one of the biggest advantages of using a demat account for MFs is the consolidation of financial assets.
For investors who are already active in equities or ETFs, having mutual funds visible in the same dashboard provides a holistic view of their portfolio.
This reduces fragmentation, enhances portfolio tracking, and improves clarity on asset allocation.
Additionally, redemptions become more predictable and streamlined in the demat mode because proceeds are routed to the single bank account linked to the demat profile, unlike SoAs, where the redemption money is sent to the bank account tied to each individual folio.
Groww pointed out that users often forget which bank account is linked to which folio, especially if they have been investing over time and switched banks. Demat resolves this problem entirely.
Another major factor is nominee convenience.
In SoAs, nominees need to be added manually for each mutual fund folio, which can be cumbersome and error-prone.
With demat, the investor can assign nominees once, and this applies to all holdings within the account. This makes estate planning and asset transfer much simpler and ensures that investments are passed on correctly without unnecessary legal friction. There is also the benefit of ease in pledging units.
Lack of centralisation leads to administrative inefficiency, especially for investors with portfolios across multiple AMCs. If the investor forgets to assign a nominee to even one folio, it can complicate matters during a claim or legal inheritance.
Demat MF units can be pledged as collateral for loans or margin trading, making them financially flexible. Additionally, they can be transferred or gifted to another person’s demat account, an option not available with SoAs.
These features are valuable for high-net-worth individuals (HNIs) and family investors looking to manage intergenerational wealth.
How does the demat process work with Groww, and can investors still choose the old method?
Groww has made demat the default mode for all new MF purchases. When a user places a mutual fund order, it will automatically be processed as a demat purchase, unless the customer opts out.
Opting out is made simple, according to the company. The user is shown a one-time prompt requiring an OTP confirmation, if they prefer the SoA route.
For those with existing MF investments in SoA form, Groww also offers the option to convert these into demat holdings.
This process, called dematerialisation, can be initiated online via NSDL or CDSL portals linked to the financial institution, or offline by submitting a physical request. The conversion typically takes a few days to two weeks, depending on the AMC and registrar.
Once converted, any additional units purchased in the same scheme through Groww will automatically be credited to the demat account.
Investors can hold some mutual funds in demat form and others in an SoA account, depending on their personal preference and financial planning strategy. Re-materialisation (meaning, switching back from demat to SoA) is a more time-consuming process and may involve manual paperwork.
Is there a cost to holding mutual funds in demat form?
In general, some brokers or DP (Depository Participant) services may charge annual maintenance fees for demat accounts or small transaction fees.
That said, the convenience and flexibility offered by demat often outweighs the minor costs for most users, especially those with a sizeable or actively managed portfolio.
Who should ideally opt for demat mutual funds?
Demat is especially useful for investors who are active across asset classes, ie, those who invest in equities, ETFs, and mutual funds.
Even passive investors, who simply want minimal maintenance, friction, and seamless redemption, benefit from the predictability and simplicity of demat.
It is also a smart option for those who prioritise long-term estate planning and want ease in nominee assignment and asset transfer.
Who is using demat mutual funds right now, and since when?
The shift towards dematerialised mutual funds has been gradual but is now reaching an inflection point. The option to hold MF in demat form has technically existed since 2009, but adoption remained low.
The first major platform to actively promote demat MFs was Zerodha, which launched its Coin portal in 2017, offering direct mutual funds in demat form.
Paytm Money followed in 2020, although it kept SoA as the default mode. Upstox also enabled demat mutual fund investments through its platform, targeting equity-first investors.