Demat account holders can now hold their mutual funds also in demat form, thanks to NSDL. This enables investors to have a government-approved custodian as a record keeper, so, in case your relationship with your broker turns sour, you have nothing to fear. Your demat account statement will also include your mutual fund investments, making it easy to manage your investments. Moreover, if you plan for loans against investments, this would come in handy, since banks are more than willing to trust NSDL records.
Details can be obtained from here.