A Demat account is an online account that holds securities in dematerialised form. The Demat account can hold any type of security, be it stocks, bonds, or Mutual Fund units. Demat accounts are easy to use and offer a lot of conveniences. Though when it comes to Mutual Funds investing, you do not need a Demat account mandatorily to invest in Mutual Funds.
Why Do you Need a Demat Account to invest in Mutual Funds?
This is a common question that new investors often ponder upon that whether a Demat account is needed to invest in Mutual Funds. One should know that a Demat account is required to invest in Stocks and no other security in India. While it may not be mandatory to have a Demat account to invest in Mutual Funds, it does have its advantages.
Demat account opening is a fairly simple process, even though it is not compulsory to open a Demat account for Mutual Fund investments, it has its own benefits. Demat account benefits are as follows
- A Demat account becomes a common place to hold all of your investments. This makes managing and tracking your investments and money to make better investment decisions and get better returns.
- As an investor, you may have invested in multiple mutual fund schemes. A Demat account can help you view all of it in a single statement.
- Since Demat accounts are online, they offer far greater accessibility. You can transact seamlessly as compared to storing your investments physically.
- You can also appoint a nominee as a result in the event of your demise; The units can be transferred easily.
Other ways to invest in Mutual Funds
Mutual Funds allow you to invest in some alternative ways, such as directly investing with the Asset Management Company or through an online provider. These methods also have some drawbacks, though.
Directly through an Asset Management Company
Asset Management Companies often allow you to invest in mutual funds by giving you the option through their website. You can simply visit the website and select the funds you want to invest in. But even then, you will be required to visit the AMCs physical branch and submit an application form along with a copy of your KYC documents and a cancelled cheque. Once the application is processed and approved, the AMC will provide you with a PIN and a Folio Number that you can use to manage your investments.
This process becomes tiresome if you’re investing in Mutual funds of different AMCs, as each one will require the same process to be repeated.
Through Independent Online Portals
You can also opt for an independent provider online to invest in Mutual Funds. For this, you will have to register online with the portal. The process is more or less similar to the AMC. The advantage that lies here is that you will be able to use a single account to manage all of your MF schemes in one place. It is important that you verify the authenticity of the service provider before you invest to avoid getting scammed, and you should also check if the portal is also approved by your bank for the Net Banking connectivity.
Through Demat account
Opening a Demat account requires you to choose a depository participant (DP). You can easily submit the application form with the required KYC documents to your preferred DP. The DP will verify the information and approve the application based on that.
Once the account is opened, you will receive the login details to access your Demat account. A Demat account can be used to manage all of your different investments, including all mutual fund schemes. This makes managing money a hassle-free process.
Mutual Funds are one of the preferred investment instruments by almost all investors. This versatile and flexible tool can give you exposure to multiple asset classes at the same time. This is one of the reasons why it is popular. You can invest in a mutual fund with or without a Demat account. The management and the evaluation process for the mutual fund are retailer simpler for beginners; however, it is mandatory to have a Demat account if you want to invest in equity-based instruments, which means that Sooner Or Later, you will have to open a Demat account hence you should not delay and open as soon as you can reap the benefits.
Q. Is it better to buy mutual funds through Demat account?
With Demat accounts, the overall transaction cost for mutual funds has reduced and have made purchasing of Mutual Funds and other securities more secure.
Q. Does a Demat account charge for mutual funds?
Yes, you will have to pay annual maintenance charges, which usually vary between Rs250 to Rs600.
Q. Do we need Demat account for SIP?
Demat accounts are not needed to begin your SIP Journey. Only if you need to invest in the stock market you need a Demat account.