Do we need a Demat Account for Mutual Funds?

5paisa Research Team

Last Updated: 28 Jan, 2025 02:25 PM IST

Do we need Demat Account for Mutual Funds
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Mutual funds have emerged as one of the favorite investment tools, offering an effortless way for investors to grow their wealth without the need for constant monitoring. In November 2024, the mutual fund industry continued its remarkable trajectory, with assets under management (AUM) reaching an impressive ₹68.08 lakh crore, marking a steady 1.22% growth compared to the previous month. This marks 45 months of positive equity inflows since March 2021. With multiple ways to invest in mutual funds one question persists: do you need a demat account for mutual funds? Let’s find out.

Do We Need a Demat Account to Invest in Mutual Funds?

If you're wondering whether a demat account is necessary for investing in mutual funds, the simple answer is no. You don’t need a demat account to invest in mutual funds. However, there are several advantages to managing your mutual fund investments through a demat account. 

Here are some benefits of investing in mutual funds via a demat account:

  • Convenience: You can view all your mutual fund holdings across various schemes in a single statement.
  • Easy Accessibility: Online demat accounts allow fast and seamless transactions, unlike physical paperwork.
  • Enhanced Security: With a demat account, there’s no risk of losing physical certificates or documents, and it reduces the chances of fraud or theft.
  • Nominee Feature: You can assign a nominee, ensuring the smooth transfer of your units to a designated person if anything happens to you.
     

Ways to Invest in Mutual funds without opening a Demat Account

Mutual funds allow you to invest in a variety of stocks, bonds, and other securities, all managed by professionals. In the past, investors received physical certificates for their units, but today, you have two primary options: a regular mutual fund account or a demat account for mutual funds. Both have their advantages, but there are several reasons why some investors prefer holding their mutual funds in a demat account:
Convenience: A demat account makes buying, selling, or redeeming mutual fund units easy and online and eliminates the need for physical certificates or paperwork.

  • Transparency: It provides a consolidated view of all your investments, including mutual funds and other securities, helping you track their performance easily.
  • Access to Credit: You can use your mutual fund holdings in a demat account as collateral if you need a loan or credit.

Investing in mutual funds doesn't always require a Demat account. There are several alternative ways to invest in mutual funds without the need for one.

Broker

Brokers typically offer Demat accounts for stock trading, and while they provide an efficient way to manage multiple investments such as mutual funds, stocks, and bonds, a Demat account is not mandatory for mutual fund investments. Keep in mind that Demat accounts come with maintenance and transaction fees, which vary from one broker to another.


Asset Management Company (AMC)

AMCs allow you to invest in mutual funds directly through their official websites. The process is straightforward: visit the AMC’s website, select your desired funds, and submit your application along with your PAN card, KYC documents, and payment (via check). Once your application is approved, you will receive a PIN and folio number to manage your investments. However, investing in multiple AMCs requires separate processes for each new investment.


Offline and Online Distributors

Mutual fund distributors, both offline and online, offer a convenient way to invest. Offline distributors provide physical acknowledgements for investments, while online distributors offer a streamlined digital experience that curates all your investments in one platform, making the process efficient and easy to track.


Via Net Banking

Several private banks offer mutual fund investments directly through their net banking platforms. By using your bank’s online services, you can purchase mutual funds and view your transactions conveniently in one place.
 

How to Invest in Mutual Funds via a Demat Account?

To start investing in mutual funds via a demat account, follow these simple steps:

  • Open a demat account with a stockbroker or Depository Participant, either online or offline.
  • Complete the KYC (Know Your Customer) process with the Depository Participant.
  • Once verified, you will receive your demat account number and password.
  • Activate the mutual fund segment in your trading account.
  • When investing in mutual funds, choose the fund you want to invest and complete the transaction by transferring funds.

After setting up your demat account, you can easily buy and sell mutual funds, just like trading stocks. 

Conclusion

While it is not a necessity to invest in mutual funds via a demat account, it certainly comes with certain advantages. But in the end, the choice is yours. As an investor, you have the freedom to choose how you want to invest in mutual funds and be a part of the world of investing. You should carefully consider your needs and then take a sound decision. 

Finding the best brokerage rates is crucial for maximizing your trading profits. In India, online trading platforms offer competitive brokerage charges, but they can vary significantly.

Among various investment options, mutual funds are the most popular. Investing in a mutual fund is a terrific choice if you want a diverse portfolio of securities but wish to have professional fund managers choose the securities. You can invest in mutual funds via the official website or a Demat account. This article explores the need for a Demat account for mutual funds.
 

More About Demat Account

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.

Frequently Asked Questions

SIPs require you to first register with an Indian broker or financial advisor before you can begin investing.

You can invest in a mutual fund without a Demat account in the following ways.

  • Broker

  • Asset Management Company

  • Offline and online distributors

  • By net banking

Online investing in mutual funds is possible through the websites of the respective funds.

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