Do You Need A Demat Account For Investing In Mutual Funds?

By Author: Nancy Ahuja
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Mutual fund investing is considered one of the safest stock market investment strategies with appropriate diversification. The Securities and Exchange Board of India (SEBI) keeps working for the safety of investors. Recently, the SEBI has tightened the pre-transaction authentication requirements for mutual fund schemes, which will reduce the odds of misuse of the pooled money.

Need For An Online Demat Account For Mutual Funds Investing

With the adoption of the online trading system in India, every individual looking to invest in the stock market requires a Demat account. However, it is a choice for mutual fund investors. A Demat account is not mandatory to buy or sell mutual fund units, but it offers numerous benefits to investors. It has made mutual fund investing hassle-free. The Association of Mutual Funds in India (AMFI) data shows that the retail mutual fund folios were at an all-time high in August 2022 (10.89 crores). You just need to mention your Client ID and Depository ID while purchasing the mutual fund units.

Demat Account Advantages for Mutual Fund Investing

Let us first ...
... define Demat Account Meaning.

A Demat account meaning is an online repository with SEBI-registered stockbrokers. It is a mandatory account to invest in most of the securities in the stock market. The account holds an investor's financial assets, including equities, mutual funds, bonds, currencies, commodities, government securities, etc.

Demat accounts facilitate investors with numerous advantages when purchasing mutual funds.

1-Compared to the offline mode that involves paper-based certificates, it is a safer way to hold securities. You need not worry about any wrongdoings rampant in physical certificates of securities.

2-Having a single screen reflecting all your investments is a significant advantage of a Demat account. You need not visit different portals of fund houses. It allows you to view numerous mutual fund schemes on a single platform online.

3-When you purchase mutual fund units directly from the company, you need to process your documents to request a buy. Investing in multiple funds means you need to go through the documentation process each time for personal and bank details. You can avoid the hefty paperwork involved in purchasing or redeeming the funds. Just open a Demat account online and verify your details only once for the investing process in different types of securities.

4-You can have your accounts updated automatically in no time whenever a transaction is carried out. You can track how your investments are performing easily and know if they are aligned with your financial goals.

How to Invest in Mutual Funds Using Demat Accounts

Mutual fund investing is easy through an online platform following these steps:

1-Login to your Demat account.

2-Choose the mutual fund house and pick the fund scheme apt for your investment goals and as per your risk profile.

3-Next, choose your preference for the mode of investing and the amount to invest in the mutual fund scheme - Monthly investment via SIP or One Time investment.

4-Since you have already verified your personal and bank details with the broker, you just need to provide your Demat account details to complete the transaction.

Thus, if you want your funds to work for you with safety, you can consider mutual funds investing through your Demat account.

How to Redeem Mutual Fund Units

You can redeem your mutual fund units stored in Demat accounts through your stock brokers in the following way:

1-First, place a sell order with the broker.

2-You will need to submit a delivery instruction slip (DIS) favoring the Clearing Corporation. It will confirm the sell order and delivery of the mutual fund units to the broker for further processing.

3-The broker will accept the funds from the Clearing Corporation following the standard settlement process and then credit your bank account with the sale proceeds.

Thus, investors do not require a Demat account necessarily to invest in mutual funds; still, most investors prefer a Demat account for easy mutual fund purchases and management of investments. Investing in mutual funds with a Demat account has become the most popular way of mutual fund investing among investors. Get details of your holdings, the current value, and the number of units you have in one place. Investors looking for savings on investing costs prefer discount brokers offering a free Demat account.