Is Demat Account Required for Mutual Funds

Is Demat Account Required for Mutual Funds

There are various ways to invest and even without a Demat account. But, where do you hold all of your money? I am sure it isn't your home locker because none of us have that much security, and honestly, that is way too outdated. We hold our money in a bank account, so we can directly use it and transfer it anywhere around the world. Now, let us compare our real market to the share market, where stocks are bought and sold. Just like how the bank account holds our money - the Demat account holds our stocks and helps us trade. Now, this was too easy an example. Let us understand this in-depth.

What is a Demat Account?

A Demat Account is a type of account used to store shares and assets in electronic form. A Demat account is an abbreviation for a dematerialized account. The goal of opening a Demat account is to keep shares that have been purchased or dematerialized (converted from physical to electronic shares), making online share trading easier for users.

For instance, you decide to invest in an SBI MF. You would have to go to a broker in person and do all the procedures. Instead, you can just open a Demat account online through the company or third-party brokers and buy the fund instantly. With this done, you can keep the digital fund in the account and even trade it online if wanted. A Demat account has a lot to offer to you. Now let us get through with that, can we?

What are the Benefits of a Demat Account?

Many individuals ask if they need a Demat Account to invest in Mutual Funds. It is critical to understand that a Demat Account is only required for investing in stocks and not in any other security. While you do not need an account to buy Mutual Funds, having one will be beneficial.

  • The account provides a central location for all of your investments.
  • It makes it easier to track and manage your money, as well as make better investing decisions for higher returns.
  • You can get a single statement that shows all of your Mutual Fund holdings from various schemes in your account.
  • Having an online account gives you a lot of flexibility. Rather than physically keeping your investments, you can conduct quick and frictionless trades.
  • A Demat Account provides greater security. All of your data is securely saved. There is no risk of physical loss or damage to crucial documents, certificates, and so on.
  • Using the account reduces the likelihood of falling victim to theft or a scam.
  • You can add a nominee to your account to ensure that units are transferred to them smoothly in the terrible case of your death.

How to Invest in Mutual Funds Without a Demat Account?

1) Through a Broker: A broker can set up a Demat account for you so you can trade on the stock exchange. If you want to invest in different investment channels such as mutual funds, stocks, bonds, and so on, you need to open a Demat account to keep track of all your investments in one spot. Demat accounts have annual maintenance costs as well as transaction fees that vary depending on the broker.

2) With Offline and Online Distributors: Offline distributors will offer you tangible receipts for your investments. Online distributors, on the other hand, provide a fully virtual investing experience. All of the investments you make via them are selected in one location for a streamlined and efficient user experience.

3) Through Netbanking: Through their net banking accounts, certain private banks allow their account holders to invest in mutual funds. If you are funded through a bank, it will appear in your net banking as well.

4) Asset Management Company: Through the individual AMCs' websites, one can invest directly in their mutual funds. The disadvantage, in this case, is that you can only invest in mutual funds offered by that AMC and no other AMCs. This mode restricts the ability to invest in other mutual funds offered by other AMCs, making it less desirable.

How to Open a Demat Account for Yourself?

Step 1: Open An Online Demat Account

Submit your cellphone number and email address in the form to open your free Demat account using a broker website or application.

Step 2: Submit Your KYC Information Online

KYC criteria must be completed in order to register with the DP and obtain a free Demat account online. You can submit your KYC information via the website or the mobile app.

Step 3: Verify Your Documents

Once you've provided your KYC information online, your DP client will double-check it to ensure complete transparency.

Step 4: Determine the Beneficiary Owner's Identity (BOID)

The DP will assign you a unique 16-digit Demat account number (BOID) after processing your application.

Things you Need to Consider Before Opening a Demat Account

Link the Account - A trading account is required to buy and sell stocks on the stock exchange. Without it, a Demat account serves little purpose other than to store your financial assets. As a result, while opening a Demat account, it is a good idea to link both of these accounts. You might also go with a depository participant like India Infoline, which provides, trading and Demat accounts under one roof.

Make Sure you are Aware of the Charges - Always read the fee and charge statement before submitting your Demat account opening form. You can also compare them to other depository participants to make sure you're receiving a good price. Being informed of the fees ahead of time guarantees that you are not taken off guard once you begin trading.

You can File a Nomination - Most individuals overlook this step when opening a Demat account. It is not a good idea to put off filing a nominee since you may forget to do so in the future. Having a nominee for your Demat account is crucial since it simplifies the process of transmitting shares in the future.

Have you Filled in the Right Details - Most individuals overlook this step when opening a Demat account. It is not a good idea to put off filing a nominee since you may forget to do so in the future. Having a nominee for your Demat account is crucial since it simplifies the process of transmitting shares in the future.

Final Thoughts

When it comes to choosing a Demat account, make sure you are aware of the fees, the charges, the depository participant, whether you can reach customer support, and so much more. But on the final line, you know a Demat account is not mandatory to invest in mutual funds - there are other ways. If you find the Demat account is not your piece of cake, you can always try the different options.