SoA vs Demat: Best Way to Hold Mutual Funds in India

Indian investors can hold mutual fund units in traditional Statement of Account (SoA) folios or electronic demat form. These two modes differ in how units are stored, accessed, and managed. In recent months, the debate – often phrased as “demat vs SoA mutual funds” – has heated up, especially after platforms like Groww made demat the default for new purchases. In this article, we explain what each method means, how it works, and its trade-offs. We'll also cover recent developments, notably Groww's shift to "demat-first" investing, and advise on which mode might be the best way to hold mutual funds for different types of investors.

Table of Contents

• Overview of Mutual Fund Holding Options
• What Is a Demat Account?
• What Is a Statement of Account (SoA)?
• SoA vs. Demat
• The Rise of Demat-First Investing on Groww
• Industry Reactions and Regulatory Considerations
• Implications for New and Existing Investors

Overview of Mutual Fund Holding Options

When you invest in a mutual fund, the units you buy are recorded in one of two ways:

• Statement of Account (SoA): This is the traditional folio that the Asset Management Company (AMC) maintains. Each investor has a folio number with the fund house (and its registrar/transfer agent). The SoA is an account statement issued by the AMC or RTA (like CAMS or KFin) that lists your transactions and holdings. It is often sent by email or post, and can be viewed via the fund house's portal, MF Utilities (MFU), or independent apps. In SoA mode, you withdraw mutual funds by specifying a rupee amount to redeem, and the AMC or RTA processes it.

• Demat Account: In this electronic form, mutual fund units are held in a securities dematerialised (demat) account managed by depositories such as CDSL or NSDL. A demat account is like a digital vault for your investments: it can hold shares, ETFs, bonds, and mutual fund units. When you buy or sell mutual funds in a demat account, the units are credited or debited in your demat account just like stocks. You can transact through your broker or trading platform, and all your holdings (MFs + other assets) show up in one unified online interface.

Each mode has its own ecosystem: SoA holdings are managed by the fund's registrar (CAMS, KFin, etc.) and can be accessed across multiple platforms. Demat holdings are tied to a specific Depository Participant (DP) or broker. Understanding these differences is key before deciding the best way to hold your mutual funds.

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What Is a Demat Account?

A Demat Account (short for Dematerialised Account) is an electronic account for holding financial securities. Think of it as a single digital locker where your stocks, bonds, ETFs and mutual funds are all stored in book-entry form. In India, depositories like CDSL and NSDL maintain these accounts, and they assign a unique ISIN (International Securities Identification Number) to each mutual fund scheme. When you invest in a mutual fund through a demat route, the new units are credited to your demat account. You can then buy or sell mutual fund units by quantity (i.e. number of units), just as you would with shares.

Demat holdings offer some conveniences. Updates to your account (like contact or bank details, nominee changes, etc.) apply across all holdings in the Demat. You also get a consolidated portfolio view: stocks, ETFs and mutual funds are all visible together. Notably, demat mode allows you to pledge mutual fund units as collateral for margin or loans in trading accounts – a feature not available in SoA form. Moreover, a single nomination covers your entire Demat account rather than requiring a separate nomination for each fund folio. These factors can enhance tracking, efficiency and transparency in your investing. As NSDL notes, digitising mutual funds "enhances transparency, efficiency, and investor control" and provides a "single consolidated portfolio view" with "automatic updates".

However, demat accounts do come with costs and limitations. You typically pay DP fees (like account opening, annual maintenance, transaction charges, and stamp duties) that SoA does not charge. Also, some mutual fund features are disabled in demat mode (for example, you cannot redeem a fixed rupee amount, only whole units, and you lose Systematic Withdrawal/Transfer Plans). We’ll detail these trade-offs later.

Want to open a Demat account but not sure how? Download free, step-by-step Demat account opening guides for top brokers

What Is a Statement of Account (SoA)?

A Statement of Account (SoA) is essentially the mutual fund folio or account statement that the fund house (AMC) maintains for you. It's like a bank statement for your mutual fund investments. The RTA (Registrar and Transfer Agent) periodically issues this statement (often quarterly) showing your transactions (purchases, redemptions, dividends) and current unit balance with that AMC. It includes key details – your name, folio number, NAV, units held, transaction history, and valuation.

In SoA mode, your mutual fund units are "held" on the books of the fund house. You can invest and redeem through the AMC's website or any broker that supports SoA (they place orders with the AMC). Notably, in SoA, you redeem in terms of money: for example, if you want ₹10,000 back, the RTA adjusts the number of units based on that NAV value (unlike demat, which requires whole-unit redemptions).

The SoA route is the older, more traditional way of holding funds. There are no demat account fees – in fact, AMCs do not charge any maintenance or transaction fees for direct folios. You can also use consolidated statements to track all your SoA folios; for example, AMFI mandates that all transactions appear in a single Consolidated Account Statement (CAS) each month. The SoA method is flexible: you can add or change nominees fund-by-fund, use SIP/STP/SWP features, and easily move funds between schemes or platforms (via MFU or off-market folio transfers).

However, the SoA approach means you may have multiple folios (one per AMC). Keeping track of them can require logging into different AMC sites or broker apps or relying on CAS/MF Central, etc. Any update (bank details, contact info) must be made separately for each folio. And while SoA holdings can be switched between distributors or platforms relatively easily, the experience is less centralised than the demat view.

SoA vs Demat

Below is a summary comparison of key features between holding mutual funds in a Demat Account versus in the traditional SoA (AMC folio) format:

Feature	Demat Account	Statement of Account (SoA)
Setup & Custodian	Held by a Depository Participant (CDSL/NSDL) via your broker. Requires a demat account.	Held by the AMC's registrar (e.g. CAMS/KFin). No separate account needed (the AMC folio is created automatically).
Portfolio Scope	Unified: can hold MFs, stocks, bonds, and ETFs all together. Consolidated tracking.	Mutual funds only. Each AMC folio is separate. Must use CAMS/KFin or consolidated statements (CAS/MF Central) for portfolio view.
Transaction Costs	Fees apply. Depositories charge account opening fee, annual maintenance charges, transaction charges, stamp duty (0.005% on purchases) etc.. Broker may also levy fees.	Free or minimal. Direct AMC folios incur no charges to the investor (no AMC or transaction fees). (Stamp duty on purchase still applies.)
Liquidity & Redemption	Units are bought/sold in whole numbers. You cannot redeem a specific rupee amount online—only whole units (which can lead to a fractional rupee shortfall). Demat redemption may take slightly longer due to the transfer process.	Flexible redemption. You can redeem any specified rupee amount and the corresponding units (even fractional) are calculated. Typically faster since it’s a direct AMC transaction.
SIP/STP/SWP Support	Limited: SIP investments can flow into demat, but SWP or STP are not supported in demat mode. You cannot modify or pause SIPs in the broker's demat interface.	Available: Systematic Transfer Plans and Withdrawal Plans work normally in SoA. SIPs can be set up/modified/paused with the AMC or platform.
Nomination & Updates	A single nomination for the entire demat account covers all holdings. One bank update or KYC update applies across all your securities.	Nomination and bank details are per AMC folio. You must update each AMC folio separately. Consolidated Account Statement (CAS) aggregates nominees but you still sign on each folio's forms.
Transfers/Switching	Tied to Broker/DP. Demat shares/units are linked to one broker. To transfer MFs to another broker’s demat account, paperwork is needed (off-market transfer). In practice, switching platforms often requires redeeming from one demat account and repurchasing.	Flexible. MFU/NFO/AMC systems allow straightforward folio portability: you can redeem from or transfer an AMC folio without a demat. Changing distributors only requires updating ARN codes.
Portfolio View	Unified view. Broker’s dashboard shows all holdings (MFs, stocks, ETFs) in one place. Real-time tracking of value.	Fragmented. Must log in to multiple sites or rely on consolidators. AMCs or aggregators provide periodic statements (CAS) for all folios. No real-time unified view.
Loan/Pledge Facility	Limited use. Demat MF units can be pledged for trading margins with the broker, but pledged funds can only buy securities.	More flexible. Banks or lenders often accept MF folios as collateral for personal loans, and you can use the funds for any purpose once redeemed.
Best for	Active investors/brokers who want everything in one place and don't mind fees. Also good if you regularly use stocks/ETFs along with MFs.	Long-term or retirement investors focused on MFs or anyone minimising costs and needing full MF features (STP/SWP). It is also ideal for NRIs (no PIS constraints) and those who prefer the AMC interface.

• Fees: In demat mode, the DP charges (account opening, AMC, transaction fees, etc.) apply, whereas SoA folios are provided free of charge. Remember, stamp duty (0.005% on purchases) is levied regardless of holding mode.
• Transaction Features: SoA mode retains all mutual fund features (e.g. SWP, STP, rupee redemptions, fractional units). Demat mode lacks SWP/STP and fractional redemptions.
• Convenience: Demat offers a seamless, unified view and single-point updates. SoA requires multiple interfaces but avoids brokerage lock-in.
• Flexibility: Changing platforms or agents is usually easier with SoA (just redeem or switch ARN) than with demat (which binds you to one broker).

Overall, the SoA mode is more cost-effective and flexible, while the demat mode provides integration and consolidated tracking.

If you're unsure which platform best suits your mutual fund investing style—whether you prefer the flexibility of SoA or the integration of a demat account—you may want to compare features, charges, and support options offered by India’s top stock brokers before making a decision.

The Rise of Demat-First Investing on Groww

Until 2025, most retail MF platforms in India defaulted to the SoA mode. Groww, one of India's biggest investing apps, has recently upended that norm. In early June 2025, Groww quietly announced that from 5 June, all new mutual fund purchases on Groww will be held in demat form by default. Users who still want the traditional AMC folio (SoA) route must now actively opt out via an OTP prompt. Existing investments and SIPs remain in SoA unless the user chooses to convert them.

Groww had actually started preparing for this shift. In June 2024, its blog revealed that, after user requests, it would offer an option to hold MFs in demat form (at no extra cost). The company assured users they could "opt-out" and continue with AMC folios if they preferred. It also noted that demat simplifies management – e.g. bank details need updating only once for all holdings – and allows pledging units for margin trades. By mid-2025, Groww rolled out demat for new accounts and made it the default mode, reflecting this new feature. (Existing users were informed they can migrate their folios to demat later if desired.)

Groww's demat-first move follows similar shifts by other platforms. As of mid-2025, brokers like Zerodha, Upstox and Paytm Money have also been enabling demat for new MF purchases. The idea is to give investors an "all-in-one" experience. But it has also led to confusion: many Groww customers complained they suddenly had duplicate holdings (one demat folio and one SoA folio for the same fund), which complicates tracking. According to a Mint report, "some investors now find themselves holding the same scheme in two different modes, complicating portfolio tracking and transactions". In short, demat mode offers a unified view and convenience, but the abrupt switch without explicit consent left users juggling two records of the same investment.

Before committing to Groww’s demat-first ecosystem, it helps to review Groww broker profile, account features, and how it compares to other investing apps, especially if you plan to use it for mutual funds and stock trading together.

Industry Reactions and Regulatory Considerations

Groww's move triggered mixed reactions. Some users and advisors have expressed frustration, not necessarily with demat itself, but with having to manage funds in two different formats. Financial experts note that demat holdings inherently tie investors to one broker. As one advisor observes, demat mutual funds "are tied to specific depository participants, making it more difficult for users to switch to competing platforms". In other words, demat creates stickiness: switching brokers or apps often means cumbersome off-market transfers or full redemption and repurchase. Industry watchers speculate this may boost user retention for platforms like Groww, which is reportedly preparing for an IPO. For example, Groww's shift aligns with the strategies of some brokerages that earn more from trading and lending than from direct mutual funds. Experts say the move “creates stronger platform dependency" and can help attract anchor investors in an IPO.

Regulators have long allowed both modes. SEBI enabled mutual funds in demat form over a decade ago, assigning each scheme a unique ISIN to simplify tracking. Depositories (CDSL/NSDL) promote demat for its transparency and efficiency, but they do not force it. AMFI still supports traditional folios, and consolidated statements (CAS) continue to be issued to SoA investors. So far, regulators have taken a neutral stance: neither mandating demat nor impeding platforms that default to it. The AMFI / CAS mechanism means SoA users still get a unified view of all folios for taxation and record-keeping.

One key regulatory change did occur in 2020: a small stamp duty (0.005% of purchase value) was introduced on all mutual fund purchases. This applies equally in demat or SoA mode when you buy units; for demat transfers (off-market gifts) a higher 0.015% duty applies. In practice, this is a negligible cost (₹ 5 on ₹ 1 lakh invested), but it is something to note. Apart from stamp duty, capital gains taxation remains the same (based on holding period and fund type) regardless of where the units sit.

In summary, industry response has highlighted both sides: dematerialisation is “the foundation of a more connected, secure, and simplified future of investing,” according to NSDL, yet it also introduces new costs and platform-dependence for investors. Regulators continue to recognise both SoA and demat, so the choice remains with the investor and their platform.

If you're considering switching brokers or consolidating investments, it’s helpful to know how to transfer shares from one demat account to another effectively and without unnecessary redemptions.

Implications for New and Existing Investors

For new investors, Groww's policy means that mutual funds you buy on Groww will arrive in your demat account unless you opt-out. This can actually simplify your investing if you also trade stocks: you get one account for everything. Your MF units will appear alongside your shares and ETFs, and updates (bank info, KYC, nominee) apply once to all. You also gain the option to pledge units for margin (if you ever trade on margin). However, you should be aware of the trade-offs: you will pay depository fees and lose Systematic Withdrawal/Transfer features. New investors should read the fine print on how to redeem partial amounts (remember, only whole units can be redeemed online from the demat account) and how to opt back into SoA if needed.

Existing investors on Groww (or elsewhere) can generally stay in SoA and continue as before. Groww's blog reassures customers that "existing investments will continue to be in SOA format" and that customers may later convert to demat if they choose. In practice, it may be wise for seasoned investors who value cost efficiency to keep using SoA. If you already have multiple AMC folios and CAS reports, you can still track everything without paying demat fees. On the other hand, if you are comfortable with your brokerage account and want convenience, you can opt to move your old folios into a demat (usually via your DP or by redeeming and repurchasing).

Regardless of the platform, investors should remember:

• Tax documentation: You will still receive Consolidated Account Statements (CAS) for all holdings, whether demat or SoA. For tax filings, ensure all units (demat and SoA) are counted. If you move a folio into a demat, your tax history remains tied to that fund, not the account type.
• Switching flexibility: If you think you might want to change platforms (or brokers) later, SoA provides more flexibility. Demat MF units can only be transferred off-market with some effort, whereas SoA can be redeemed online and bought on any platform or through MFU easily.
• Investor profile: Long-term SIP and retirement-oriented investors often benefit from SoA for its lower cost and support of SWP/STP. Young or tech-savvy investors who trade multiple asset classes may prefer Demat's unified view.

Even if you're primarily a mutual fund investor today, it might be worth understanding why a demat account is necessary to broaden your investment options and offer long-term advantages.

Conclusion

Investors have a real choice in how their mutual funds are held. Statement-of-Account (SoA) folios remain the low-cost, flexible option – they are fee-free, support all fund features (SWP, STP, rupee redemptions) and allow easy switching between platforms. Demat accounts offer convenience and integration – all investments (stocks, ETFs, MFs) sit in one portfolio, and updates apply universally at the expense of some fees and restrictions.

Which is "best" depends on the investor. For most people focused on mutual funds alone, the SoA mode (via any direct-plan platform) is often the simpler, cost-effective choice. Demat mode may make sense if you already use a brokerage a lot or value one-stop tracking.

Recent trends (like Groww making demat default) show that digitisation is growing. Still, neither method is compulsory. Whether you’re starting a new SIP or holding an old folio, know your options: you can usually choose or switch between SoA and Demat. Use the method that aligns with your investing style, cost sensitivity, and desire for convenience. Ultimately, informed investors can benefit from the strengths of both approaches.

FAQs

1. What is the difference between Demat and SoA in mutual funds?
Demat mode stores your mutual fund units in a depository account (like CDSL/NSDL), just like stocks. SoA (Statement of Account) mode keeps your units in folios maintained by the AMC’s registrar. Demat offers a unified investment view, while SoA is more flexible and cost-effective for mutual funds.

2. Is it mandatory to hold mutual funds in a demat account?
No. Mutual funds in India can be held either in a Demat account or in the SoA mode. It is not mandatory to use a Demat account for mutual fund investments. Most direct investment platforms support SoA.

3. Why is Groww making demat the default option?
Groww aims to offer a seamless investment experience by integrating mutual funds with stocks, ETFs, and bonds in one demat account. This simplifies portfolio management, but it also means Groww users now need to opt out if they prefer SoA mode.

4. Can I switch my mutual fund holdings from SoA to Demat or vice versa?
Yes. You can convert SoA holdings to demat via your depository participant or broker. Switching from demat back to SoA typically requires redeeming units from the demat account and repurchasing them in SoA format.

5. Is there any impact on taxation if I hold mutual funds in demat vs. SoA?
No. Capital gains tax rules are the same regardless of the holding mode. The format (demat or SoA) doesn't affect your tax liability; it's based on the holding period and fund type (equity or debt).

6. Can I pledge mutual fund units held in SoA for loans or margin trading?
Typically, no. Pledging is available only for demat mutual fund units, which can be used as a margin with brokers or for securing loans (subject to lender acceptance).

7. Does demat support Systematic Investment Plans (SIPs)?
Yes, but only partially. You can set up SIPs into demat accounts, but demat mode doesn't support Systematic Withdrawal Plans (SWPs) or Systematic Transfer Plans (STPs). SoA mode supports all SIP-related features.

8. Which is better for long-term investors: Demat or SoA?
For long-term or retirement-focused investors, SoA is usually better due to lower costs and full feature access (like SWP/STP). Demat is more suited for active investors who prefer a consolidated investment view across mutual funds and equities.