Is A Demat Account Required For Investing In Mutual Funds? – Forbes Advisor INDIA

Demat accounts are useful when it comes to investing. From stocks to mutual funds, demat accounts facilitate investments almost seamlessly. But do you need to invest in mutual funds via these accounts? The short answer is no. It’s not necessary to have a demat account to dive into mutual fund investments, however, it is worthwhile. 

What is a Demat Account and Why is It Required for Mutual Fund Investments?

A demat account is an electronic repository of records establishing ownership of trades. It is used for holding securities in digital format, instead of physical form and is commonly used in India to buy and sell stocks and bonds conveniently and securely. 

Using a demat account has several benefits such as easy and secure trading, efficient storage and uncomplicated settlement of securities and trades. Since securities are stored in digital format, it allows for easy access from anywhere in the world

Benefits of a Demat Account for Investing in Mutual Funds

If a demat account is not required for mutual fund investments, why do brokers push them? The reason is that numerous benefits accrue. 

1. Convenience and safety: In a demat account, securities are stored electronically. This makes a demat account a hassle-free platform to buy, sell and manage investments. It’s worth noting here that this is also a safer way to hold investments as electronic mode makes it hard for documents to be forged or stolen.
2. Efficiency: Using a demat account, even a single share can be sold and sold quickly. If a broker operates the account, he or she can spot a favorable opportunity to sell and raise a request instantly. Additionally, it’s worth noting here that the account facilitates change in personal details such as address at the convenience of a few clicks.
3. Diversity: You can hold way more than just mutual funds. Equity, debt and ETFs become accessible to a demat account holder.

Read More: Best Demat Account in India

Other Ways of Investing in Mutual Funds

Other than a demat account, the following channels are available to investors to facilitate their foray into mutual funds:

Most brokers provide demat accounts to investors looking to trade on the stock exchange. Once again, the option is great for people seeking varied investment instruments. However, it should be noted here that different brokers might charge different transaction fees and annual maintenance.

This is usually considered to be an effort-intensive channel even though the process in itself is simple. For instance, investing requires two things – visiting the company’s website and choosing your funds and then visiting the physical branch to submit your know your customer (KYC) documents. Once the application is submitted completely, the company will follow its approval process and provide you with the folio number and pin.

Noteworthy here is that each time you invest in a new folio, you will have to go through the same process.

Several private banks allow customers to invest in mutual funds via their online banking facility.

This channel has no dearth of players and several online and offline players  While the former provides a virtual experience, the latter relies on the physical format of paperwork. The investment process is similar to that of using AMCs.

Read More: How to Transfer Stocks From One Demat Account to Another

How to Open a Demat Account?

Demats accounts are opened at central depositories like National Securities Depository Limited or the Central Depository Services Limited via depository participants or DPs. These DPs can be any financial institution, appointed by a central depository once a Certificate of Registration is granted by SEBI. A DP is essentially an intermediary between a depository and an investor.

To open a demat account, three steps are required.

1. Zeroing down on your DP: Lists of registered DPs can be found on the NSDL or CSDL websites. You can choose one that works for you from here. Conversely, if you have already zeroed down on an independent entity, you can check if it is registered as a DP on these websites.
2. Opening an account: DPs provide customers with account opening forms. Successful submission of application requires the inclusion of documents such as proof of identity (PAN card), proof of address (Aadhar card, voter ID, driver’s license, etc), copy of canceled bank cheque or passbook, proof of income (ITR documents or salary slips of last six months) and passport size photographs. Once these are verified, a set of documents are provided to the investor.
3. Receipt of Documents: Once the account is open, the customer receives a copy of the client master report, power of attorney document, login ID and password, demat account number and DP identification code.