Last Updated on August 9, 2023 at 9:17 am
The following is an account of an ordeal to redeem from mutual funds in demat form. As mentioned several times earlier, holding mutual funds (except ETFs) in demat form makes no sense. Mutual fund units are already in electronic form! Unless an investor wants to (or rather tries to) sell closed-ended mutual funds before maturity, the demat form for mutual funds is useless and can be a hassle. We will start with a message received from a reader.
“I seek your guidance regarding the process of redeeming my Mutual Fund units which are in demat format. Let me bring some context to this conversation with this quick summary”
“Earlier this year, I closed my full-service brokerage account with Sharekhan and moved all my securities (a few equities and mutual fund units) to Groww.
“The now-transferred mutual funds I was investing in with the Sharekhan platform were Mirae Asset Large Cap Fund Regular – Growth and Sundaram Large and Midcap Fund Regular Plan (previously called Principal Emerging Bluechip Fund – Growth Option). And these units were being held in the demat form”.
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“As you are aware, Sharekhan uses NSDL as their securities depository and post the closure; all the assets have now moved to CDSL (via Groww)”.
“When I tried to place a redemption request via Groww, it was declined, stating that the units were in demat format (sorry for sounding like a broken record) and I would need to reach out directly to the depository. I also tried to seek help from the MF AMC; however, it was turned down”.
“After a bit of research on the internet, I have now managed to set up a CDSL Easiest account; however, apart from viewing my holdings, there isn’t any clear guidance around the redemption process via CDSL directly”.
“I have written to CDSL’s available email IDs (helpdesk and many other miscellaneous email IDs) and tried reaching them over the phone – all in vain”.
“So, here I am (maybe like many other naïve investors) – seeking your guidance in this matter. I am unsure if this is blog-worthy; however, it would greatly help if you could point me in the right direction”.
The right direction was obvious to me – speak to Ashal Jauhari, the founder/admin of the Facebook group Asan Ideas for Wealth.
Ashal replied: “You must do a lot of work to redeem these units. Please apply for conversion of these demat units into SoA – statement of account units. Once these units are converted to SoA units, you can redeem directly with AMC or RTA portals/app”.
This took more than two months to resolve—the reader kindly provided a summary for the benefit of others.
- Groww (the Broker) declined my request to convert the MF units into SOA form; I contacted CDSL’s complaints department (SheltonJ@cdslindia.com) and was advised that the broker cannot deny this request, and he wrote to the Compliance Officer at Groww.
- Within a few days, I received a call from Groww and was taken through a step-by-step process to first fill in an “MF – Restatementization Request Form” and courier the same to Groww. They, in turn, will update this with the AMCs; the timeframe mentioned was 30 working days.
- So, almost after a month – the re-materialization was successfully completed; however, I was informed (before the request was placed) that the MF AMC and not Groww will now manage all redemption-related activities.
- Additional update: Sundaram Mutual Funds allows redemption requests online; however, for Mirae Asset Mutual Funds – the redemption request needs to be made at their office or by sending the forms via courier to their office.
In summary, the discussion that started in November 2022 was finally brought to a successful end in February 2023.
Key Learnings:
- Invest in Direct Mutual Funds (not regular)
- Buy them from the AMC directly or avoid the Demat format altogether
- Keep an open mind and be ready to learn from all situations in life
If you notice, the source of the mistake was the system allowed the transfer of demat MF holdings from a regular plan broker to a direct plan broker (Groww) that does not support the demat format (for MFs at the time of writing).
Investors must be allowed to convert their demat units to SOA units and directly manage them at the AMC portal when closing a demat account. Better still, SEBI must eliminate the demat format for all MFs except ETFs and optionally closed-ended MFs.