SOA vs demat account: Which option is better for mutual fund investors after SEBI's latest move?

You can hold mutual fund units in two ways — through a Statement of Account (SOA) or a demat account. In the SOA format, units are recorded directly with the AMC or its registrar, while in the demat format, they are held electronically in a demat account.

SEBI has recently released a circular to allow SWP and STP standing instructions for mutual fund units held in demat accounts. Earlier, such standing instructions were available only for SOA-held mutual fund units, where the AMC or its registrar could execute these automated transactions.

Shweta Rajani, Head of Mutual Funds, Anand Rathi Wealth, said, “This removes a key challenge for investors holding units in demat form, who earlier had to manually initiate every withdrawal or transfer transaction.”So, let’s understand how both options work and which one may be more suitable for you.

Explaining the mechanism, Rajani said, “In the Statement of Account option, units are held directly with the AMC and its RTAs, and investors receive a statement of account as proof of investment. This is available through AMC websites, RTAs such as CAMS and KFin Technologies, MF Central and various investment platforms.”

Demat mode, on the other hand, works similarly to holding shares. Mutual fund units are stored electronically in a demat account maintained through a Depository Participant (DP) linked to NSDL or CDSL.

“Demat mode is where units are held electronically in a demat account like shares, and they are allowed to buy or sell through stock brokers like Zerodha,” Rajani explained.

Aditya Agarwal, Co-Founder, Wealthy.in, pointed out, “With SOA, investors can invest, redeem, switch or start SIPs directly through the AMC, RTAs or platforms such as MF Central and various online distributors.”

The mutual fund-related costs remain the same irrespective of the holding mode. Investors pay the scheme's applicable total expense ratio, exit load and taxes. However, the cost of maintaining the investment account can differ.

“SOA-based holdings generally do not charge any account maintenance charges, whereas in demat holdings, some depository participants charge annual maintenance charges and, depending on the broker, there could also be certain service or transaction charges,” Rajani mentioned.

Agarwal added that “investors opening a demat account solely for mutual fund investments should evaluate whether the convenience of consolidated holdings justifies the recurring maintenance costs”.

“Demat holdings allow investors to manage equity shares, ETFs, bonds and mutual fund units under a single account, making portfolio tracking, redemption, nomination and rebalancing much easier. These units can also be easily transferred off-market (like shares) to another demat holder, which is useful for gifting,” a Groww spokesperson explained.

“A single nomination at the demat account level covers all securities held in the account, simplifying succession compared with managing multiple folios across different AMCs in the SOA format,” the spokesperson added.

Highlighting another operational difference, the spokesperson said that in the SOA format, redemptions could only be credited to the folio-linked bank account.

“Over time, investors may change their bank accounts, and outdated or inactive bank details linked to older folios can create challenges during redemption. On the other hand, in the demat format, customers can maintain a single bank account across all their investments,” the spokesperson added.

As per SEBI’s July circular, the rollout of SWP and STP standing instructions for mutual fund units held in demat accounts will take place in two phases. The facility for unit-based SWP/STP will be implemented by 31 January 2027, while amount-based SWP/STP will become available from 30 April 2027.