Is a Demat Account Mandatory for Mutual Funds?

To invest in any type of securities, you need a Demat account. You can invest your funds in a range of securities, including stocks, bonds, and other assets, through a mutual fund. Each investor owns a percentage of the fund’s overall holdings, which are overseen by professional fund managers.

Before investing in this type of security, many investors ask, ‘Do I need a Demat account for mutual funds?’ However, it is not mandatory to have a Demat account to purchase mutual funds. Read this blog to learn more about do mutual funds need Demat account.

What is a Demat Account?

A Demat account allows you to hold securities in a digital or dematerialised form. One of the primary depositories, such as the National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL), keeps your Demat account when you first open it. However, these depositories do not communicate with investors directly. The depository participant (DP) communicates and also provides the Demat account opening service.

Additionally, the Demat account makes corporate acts like rights, bonuses, stock splits, and dividend credits easier, as they are instantly credited to the appropriate DP account.

Advantages of Using a Demat Account For Mutual Funds

There are numerous advantages of using a Demat account for making investments. Below are some of the advantages of using a Demat account for mutual funds:

• You can view all of your mutual fund holdings in a single statement from various schemes through a Demat account. You can simply track and make financial planning decisions with a real-time valuation of your portfolio.
• Having a Demat account makes your transactions of mutual funds complete easily. In addition, Demat transactions are safer, as there is a minimal chance of fraud.
• In your absence, your Demat nominee will also immediately become the nominee for the mutual fund holdings.
• The mutual fund automatically updates the bank and contact information based on the corresponding DP information.

Disadvantages of Using a Demat Account For Mutual Funds

Besides the aforementioned benefits, using a Demat account for mutual funds also has several drawbacks, which are discussed below:

• Some brokers may ask you to pay fees to open a Demat account. They also charge transaction fees that can be hefty in terms of the returns generated.
• There is a high risk that your password for the Demat account can be tricked by scammers. As a result, they can access your account and securities.
• This account has a single nominee option. Additionally, if a Demat account is registered in a single person’s name, an investment cannot be kept jointly.
• For investing only in mutual funds, you may not need a Demat account. Hence, paying the annual maintenance charges (AMC) can seem unnecessary for a few investors.

Different Ways to Invest in Mutual Funds Without a Demat Account

For investing in mutual funds, it is not mandatory to use a Demat account since there are other options which you can use to buy mutual funds:

• AMC Websites

  You can buy and track mutual fund units using the websites of numerous asset management companies (AMC).

• Banks

  Multiple banks provide mutual fund investment services with their online banking applications. You can use them as part of your daily e-banking services.

• Registrars and Transfer Agents (RTAs)

  You may use the RTA platforms to directly invest in mutual funds without the need for a Demat account.

Final Thoughts

Although you can hold mutual fund units in a Demat account, the answer to ‘do mutual funds need Demat account?’ is no. There are a lot of options you can use to invest in mutual funds. These include AMC websites, RTAs, and banks. You do not have to pay hefty maintenance charges using these platforms.

However, if you want to invest in stocks and other securities, you should open a Demat account. Download the PL Capital Group – Prabhuas Lilladher application to open a Demat account for free! You do not have to pay any AMC for trading using the PL application.

Frequently Asked Questions

1. Does investing in mutual funds require having a Demat account?

It is not mandatory to use a Demat account to invest in mutual funds. You can use alternative options like AMC websites, banking apps, and RTAs to buy mutual fund units.

2. Does holding mutual funds in a Demat account incur any extra fees?

Besides the expense ratio and exit loads, you have to pay annual maintenance fees and transaction charges to buy mutual funds using a Demat account.

3. Is it simpler to monitor investments in mutual funds with a Demat account?

Yes, it is simpler to monitor mutual funds with a Demat account as it helps track all your funds in a single platform.

4. Do I need a Demat account for SIP?

No, you do not need a Demat account for a Systematic Investment Plan (SIP) as you can use AMC websites, RTAs, and online banking platforms to do it. However, it is recommended to use a Demat account for easy tracking.