A Demat account is needed when someone is interested in investing in shares and debentures. A few decades ago, embarking on an investment journey required tedious paperwork and long hours of processing the submitted application. However, things changed for the better after specific changes in the regulations of the Securities and Securities and Exchange Board of India (SEBI).
The SEBI introduced the Demat account, which allows investors to engage in any financial activities related to shares and securities, such as stocks, bonds, and mutual funds. Simply put, it is mandatory to have a Demat account to buy and sell shares and securities.
What Is a Mutual Fund?
Most first-time investors (and even seasoned ones) are sceptical about their expertise when dealing with their money in a turbulent market like the Indian stock market. In the absence of expertise, they often look for alternatives where someone can help in their investments. This is where mutual funds come in.
A mutual fund is primarily an investment company that collects or pools money for stocks and securities, such as stock, bonds, digital gold, and short-term debts from different investors. There are various reasons why many investors choose to buy mutual funds. Some are:
• One does not need to do research for the market. A fund manager does this task on their behalf. These fund managers are responsible for selecting securities and monitoring the presence of these securities in the market.
• Mutual funds invest in a range of companies, reducing the risk of losing hefty investments, such as in the case of a one-company investment.
• Most mutual funds offer a relatively low sum for initial investment and forthcoming purchases.
• Investing in mutual provides better liquidity as mutual fund investors are free to redeem their shares at any time.
Do We Need a Demat Account to Buy Mutual Funds?
Many first-time investors are unsure whether or not they need a Demat account for mutual funds investment. While it is a strict requirement by the SEBI to have a Demat account for investing in stocks, one does not need a Demat account for investing in other securities, including mutual funds. However, it is always helpful to have one opened when buying mutual funds.
What Are Some Advantages of Having a Demat Account For Buying Mutual Funds?
Even though it is not mandatory to open a Demat account for making mutual fund investments, there are various advantages of having an account. Let us know why.
• A Demat account allows you to have a common platform to hold all your financial investments. Doing so makes it easier for investors to track their money and earn better returns.
• Since a Demat account is online, investors can engage in a faster and effortless transaction.
• A Demat account offers a single statement to view mutual fund holdings from various schemes.
• Unlike physical investments, a Demat account is better suited for a safer and more secure transaction. The risk of losing or damaging essential documents or certificates is almost reduced when dealing with shares and securities through the Demat account.
• A Demat account also saves you from potential theft or scam.
• Most importantly, a Demat account allows investors to add a nominee to their account, enabling a smooth transaction of their investments in case of death.
Ways to Make Mutual Fund Investments
Do we need a Demat account to buy mutual funds? If not, how to buy mutual funds online without a Demat account? Are these questions bugging you?
Well, let us look at some possible alternatives to investing in mutual funds:
Making Investments Directly via an Asset Management Company
Asset management companies or AMCs allow mutual fund investors to invest on official websites. After selecting the funds, investors are required to physically visit the respective AMC branch and submit the application form.
When visiting the branch, the investor should carry documents such as a PAN card copy, KYC documents, and a cheque. Once the AMC approves the application, the company will provide a unique PIN and portfolio number that investors can use to manage their investments.
Many investors may find this alternative relatively more complicated than other options, primarily when investing in different AMCs.
Making investments using independent online portals
Many separate online portals also offer mutual fund investors to make suitable investments. The registration is the same as that of AMCs. However, unlike AMCS, investors can use a single account to manage their multiple mutual fund schemes.
As a pro-tip, the investors must ensure the authenticity of these portals, as the likelihood of getting scammed is pretty high with this option.
Making Investments Through a Demat Account
A Demat account opening requires investors to select a Depository Participant or DP. Once the DP is selected, the investors can submit their application form and related mandatory documents, such as PAN cards, KYC documents, identity forms, etc.
The DP will then be responsible for verifying KYC information and approving incoming applications. Once the account is approved, the investors will receive an account number and password for accessing the Demat account.
Conclusion
Opting for a Demat account to buy mutual funds offer various benefits, ranging from hassle-free transactions to risk-free investments. Upstox is an ideal platform for making mutual funds investments. One can use the same Upstox Demat account to invest in IPOs, EFTs, bonds, securities, equity, gold bonds, and non-convertible debentures.