The advantages and disadvantages of holding Mutual fund schemes in Demat Account are summarised below:
Pros:
  1. Convenient and Paperless transactions: You can centralize your mutual fund and stock investments at one place and/or have multiple schemes spread across fund houses. Also, there would be no tiresome process of form filling or giving documents every time you buy MF.
  2. Simplifies the nomination requirements for your investments: This is true in case of a single nominee for all your investments.
  3. Convenient in case of change in contact information: This consolidated platform Demat Account helps if the investor changes his address or mobile number. Instead of multiple applications to different Fund Houses requesting for change of address, you need to give just one application for the multiple investments you hold. Once the change in contact information is updated with your depository participant (DP), the same will get registered electronically with all the AMCs and RTA.

Cons:
  1. Higher charges: Trading and holding mutual funds schemes through Demat Account is a bit expensive compared to the same done through independent online mutual fund platforms such as FundsIndia and FundsSuperMart. Most Brokerage houses charge a flat fee for both lump sum and SIP investment in mutual fund schemes unlike the online mutual fund platforms who offer the same service for zero fees.
  2. Advantageous if you are a Stock Investor: Investment in mutual fund schemes through Demat Accounts is useful and cost effective for those who also invest/trade in direct stocks. Otherwise, you are better off investing in mutual funds through other channels.
  3. Not all schemes offered under Demat Account: You can purchase and hold units of mutual fund schemes of only those AMCs with which your Brokerage House has tie-up with. If you wish to invest in schemes of other AMCs, you may have to consider other channels (as listed above).
  4. No Joint Account holdings: Joint account mutual fund investments cannot be held in a single holder Demat Account, and vice versa.


Source - investmentyogi.com