Opening a Demat Account to Invest in Mutual Funds

A Demat account is an electronic facility for holding additional securities under one roof. It is a compulsion set by the SEBI for opening a Demat account to enter the share market trading. But it is not compulsory to open a Demat account for buying, selling, or managing mutual funds. 

The advancement of technology has effectively removed the compulsion of opening a Demat account for investments in mutual funds, including the SIP options. You can buy mutual funds directly via AMC (Asset Management Company), personal finance advisor, bank, or other third-party portals. Purchasing a mutual fund directly from the company bypasses the use of a Demat account or a broker. You get additional control, accountability, and responsibility for the mutual fund trading. For buying directly from the company, the mutual funds make the form available for you to fill and send to the company to request shares. After redeeming the shares, the money received from sales is directly sent to your bank account.

Additional Read: 7 things new Mutual Fund investors need to know

Why do you need a Demat Account to invest in Mutual Funds?

While you need not compulsorily have a Demat account for managing the mutual funds, there are a lot many advantages of having one:

• It becomes more accessible and safer to gold securities when compared to the previous method of relying on physical certificates.
• Electronic book-keeping is a quick and automatic way to update accounts.
• It is convenient to increase the speed at which a mutual fund is processed as the paperwork is eliminated.

Additional Read: Why Demat Account is Must for Todays Investor

When you buy a mutual fund through a Demat account, the online gateway makes the choice, evaluation, and comparison of funds easy for you if you prefer managing your accounts by yourself. A Demat account favors the electronic management of mutual funds. You will also get a consolidated view of all the securities held in the Demat account. Having said this, there are ways other than Demat account too through which you can invest in Mutual Funds.

Additional Read: Features and benefits of a Demat Account

Ways to invest in mutual funds include:

Broker on the stock exchange

This involves a Demat account. It is convenient to invest in bonds, mutual funds, and stocks to see all your investments in one place. The transaction and annual fees are charged based on the type of Demat account one holds.

Through AMC

You can invest in Mutual Fund via an AMC (Asset Management Company) website directly. But this is possible if the investment is only for one AMC. Investing in only one AMC restricts diversification. The company tries promoting their mutual funds instead of laying various other options that might prove effective for shielding against risk.

Offline distribution

Various offline distributors offer a host of mutual funds to invest in. The offline investment handles the physical form of shares, that is, certificates, and they'd deal in paper acknowledgments.

Online distributors

Online distributors offer a paperless experience with full tracking and other relevant controls. It's easy for you to track the investments in one place, making it easier to decide the redemption. The service is free of cost for you. 

Additional Read: Dos and Don'ts for a Demat Account

Conclusion

Mutual Funds are one of the most sought-out investment instruments by hordes of investors. This versatile and flexible tool can give you exposure to multiple asset classes at a time. This is one of the reasons for its popularity. You can invest in a Mutual fund with or without a Demat account. But when you choose to invest through a Demat account, the evaluation and management aspects of the mutual fund and your complete portfolio become relatively simple for beginners.

Moreover, a Demat account is a mandatory requirement for equity-based investments. Sooner or later, you may need it. So why delay? Open your Demat account now, start investing and reaping the benefits.

Additional Read: Can I trade without Demat Account?

Additional Read: 5 mistakes to avoid while investing in Mutual Funds

FAQs:

    1.  Is it better to buy mutual funds through a Demat account?

It may be better to buy mutual funds through a Demat account when you already have a Demat account. However, if you do not have a Demat account, you can choose to invest directly through the AMC as well. The advantage of investing via your Demat account is that you get a consolidated view of all your portfolio holdings in one place. In other words, it becomes easier to manage your portfolio. More so, if your Demat broker provides you with additional value-based services such as research, investment recommendations, investment consultancy, etc., you can make a more informed decision to grow your funds. 

Additional Read: Pros and Cons of Opening a Demat Account

Additional Read: How to Choose the Best Broker?

   2.  Does a Demat account charge for mutual funds?

Yes, Demat accounts charge you for investing in Mutual Funds.

You can invest in a Mutual fund through your Demat account, just like you invest in shares. Investing through a Demat account has its perks like better analysis of the fund, quicker and hassle-free transactions, etc. However, all this comes with a cost. And it may vary from broker to broker based on the quality and quantum of service they offer. These costs include broker commission during the purchase and sale of mutual fund units, annual maintenance costs, etc. 

Additional Read: Checklist of Demat Account Charges and Fees

   3.  Do I need a Trading account for mutual funds?

Not really. Having a Trading account is not a mandatory requirement to invest in Mutual Funds. You can invest in Mutual funds with or without a Trading account. If you do not want to invest through a Trading account, you can buy and sell Mutual fund units directly from the website or via online distribution platforms/portals. A Mutual fund advisor or broker can also help you to invest in Mutual Funds.

Additional Read: What is Trading Account? A Detailed Explanation

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No: 022 - 2288 2460, 022 - 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.