Why Demat Mode Quietly Hurts NRI Mutual Fund Investors

Why Demat Mode Quietly Hurts NRI Mutual Fund Investors

For NRIs in the US, Canada, Australia, and the GCC, a silent wealth drain eats away at returns every year, demat fees, compliance, and endless paperwork costing 1–2% annually.

On paper, demat mode looks efficient. In reality, for most NRIs investing in Indian mutual funds, it introduces costs and complexity that compound over time, with no improvement in returns.

Broker/Demat gives NSE/BSE access via PIS for stocks (Reliance, HDFC, TCS), ETFs, IPOs. Australia NRIs get full repatriation. But costs kill returns: Zerodha ₹500 open + ₹500 AMC + 0.5%/₹ 200 per order; ICICI ₹2,400 -₹14,000 upfront; HDFC 0.50%. US/Canada: delivery only (no intraday). You lose ~₹5,000+ yearly on JUST 1 SIP.

The Real Cost of Demat Mode (With Numbers)

Let’s take a simple, realistic example.

Assume:

• NRI investor based in the US

• ₹50 lakh invested in Indian mutual funds

• Investment horizon: 15 years

• Expected annual return: 10%

Now add demat-related friction:

• Annual demat + custody + broker charges: 0.75–1%

• Hidden costs during transactions, service requests, transmission, and repatriation: ~0.5%

• Total annual drag: ~1.25–1.5%

What happens over 15 years?

• At 10% return, ₹50 lakh grows to ~₹2.09 crore

• At 8.5% return (after demat drag), it grows to ~₹1.70 crore

That’s nearly ₹40 lakh lost, not to markets, but to structure and paperwork.
And this loss compounds further if:

• You add SIPs over time

• You hold funds for 20+ years

• You face transmission or repatriation events

Complexity Is the Bigger Risk for NRIs

For NRIs, the bigger issue isn’t just cost, it’s operational risk.
In demat mode:

• Every mutual fund holding is tied to a broker and depository

• Nominee updates, KYC changes, and transmission require multiple approvals

• Upon death, heirs must coordinate between broker, depository, AMC, and bank

• Repatriation often triggers additional documentation and delays

This complexity is precisely why many NRIs end up:

• Investing in parents’ names

• Using workarounds that later create inheritance and tax problems

• Facing long delays when money needs to move across borders

Non-Demat Mode: Designed for Long-Term Mutual Fund Investors

Non-demat (Statement of Account) mode removes this drag entirely.

Using the same example:

• ₹50 lakh invested for 15 years at 10%

• No demat, custody, or broker fees

• Final value remains ~₹2.09 crore

You keep the extra ₹40 lakh simply by choosing the right holding structure.

Why Non-Demat Mode Works Better for NRIs

In non-demat mode:

• Zero demat or custody fees

• Records are maintained directly by AMCs and RTAs (CAMS/KFintech)

• Nominee and transmission processes are centralized and clearer

• Repatriation documentation is simpler and more predictable

• You reduce dependency on brokers, critical for long-term, cross-border investors

Most importantly, your investment returns reflect market performance alone, not avoidable structural costs.

The Insight Most NRIs Learn Too Late

Demat mode is ideal for active equity traders.
It is not designed for long-term mutual fund investing, especially for NRIs managing taxes, inheritance, and future repatriation. For NRIs, simplicity isn’t convenience, it’s risk management. Choosing a non-demat mode isn’t a small optimization.
Over decades, it can mean the difference between financial efficiency and silent wealth erosion.