Mutual Fund can be hold in various forms. In a mutual fund, an investor holds the NAV units for the money he had invested on a particular scheme. For example- A person had invested Rs. 1000 in a particular fund, where the Mutual Fund company is allocating 0.1 units for every Rs. 10 invested. In this case, the Mutual Fund company will allocate 10 units to the investor for his investment of Rs. 1000. Now, we will understand the various forms where an investor can invest his money.
In paper form the investor will be allocated by a paper or a certificate which he needs to hold physically till the redemption date. At the time of redemption, the unit holder or the investor need to surrender the paper/ certificate to the Mutual Fund Company. The Mutual Fund Company/ Asset Management Company will credit the amount to the investor bank account after receiving the certificate from the unit holder. This kind of investment modes are not used now a days because of various reasons. Most of the time, the investors lost the certificate which makes the unit holder unable to redeem his NAV units. Most of the time, due to the bad condition of the certificate due of various reasons, it was difficult for an Asset Management Company to identify them. To avoid these things, paper form of holding was stopped.
In electronic form, Unit holders are allocated by an online portal, where they can track their their portfolio, buy additional units, redeem units partially or fully and get them credited to their bank account when ever they want according to the fund type. Here the investor is having the freedom to check his portfolio, when ever he wants to and he can transact them easily. For example- an unit holder is having Rs. 10,000 equivalent of funds available on his portfolio. He needs Rs. 5000 at a point of time. He will be able to withdraw Rs. 5000 partially from his portfolio of Rs. 10,000 when ever he wants. Alternatively, he can also withdraw full Rs. 10,000 when he wants.
In electronic form, the Mutual Fund company use to hold the NAV units on behalf of the unit holders. In case of DEMAT form, the Mutual Fund company, transfers the NAV units to the Demat Account of the concerned investors. The investor can easily track his portfolio from his Demat Account, as he can see the NAV units from all the Mutual Fund companies on a single place. With a single Demat account login portal, investors can easily track all his portfolio. An investor can even buy and sell his units from his single Demat Account. On selling the NAV units from his Demat Account, the money will get credited to the investors trading account. The investor have the option to buy a new fund or share, using the balance available on his Trading Account. Alternatively, the investor can also withdraw the money from his Trading Account to his Bank account. Trading account is an additional account linked to a Demat account. The main function of a trading account is to hold money, initiate trading on shares, mutual fund and transfer them to the linked Demat Account.