Beginners in the stock market consider mutual fund investment as the best tool to create wealth in the long run. This entices novices because mutual funds allow investing a small amount through a systematic investment plan (SIP).
Most financial assets in the stock market, like equities, bonds, and exchange-traded funds, require a demat account with the investors. A demat account makes the investing process easy and paperless. Investors can have a single view of all the financial products in their demat account.
Is it wise to invest in mutual funds using a demat account?
With the adoption of the online trading system in India, stock investments require you to have a demat account. However, when it comes to mutual fund investing, a demat account is an option. Discount brokers can offer you a free demat account with their unique subscription-based trading plans.
As the technology evolved, stock exchanges came up with their platform available for mutual fund investing. While in the case of financial assets other than mutual funds, investors had to protect the paper certificates issued against those investments. But when you invest in mutual funds, you are issued folio numbers. You do not require a demat account to store your mutual fund units.
A demat account is not mandatory to buy or sell mutual fund units. As it offers numerous benefits to investors, they prefer to invest using a demat account. Also, the answer to ‘should you use your demat account to invest in mutual funds depends on your requirement and understanding of the product. Investors who understand high-rated funds, hybrid funds, etc., prefer mutual funds investing through a demat account.
Demat Account Advantages for Mutual Fund Investing
A demat account offers numerous advantages when investing in mutual funds.
- Simplified Processing
When you invest in mutual fund units directly with the Asset Management Company (AMC), the company will process your documents to process your request to buy. If you want to invest in multiple funds, you need to go through the documentation process each time. Using a demat account, you can avoid the hefty paperwork involved in purchasing or redeeming the fund units. Open demat account online and complete KYC only once for the mutual fund investment process in different types of securities.
- Utmost Safety
Compared to the offline mode for investment, a demat account offers greater safety. You need not worry about any wrongdoings that may be an issue in the case of physical certificates of securities.
- Single-screen View of Your Investment
Your demat account allows you to view numerous mutual fund schemes on a single platform online. You can check and select the most suitable fund scheme aligning with your investment goals. Tracking all your investments using a single screen is a significant advantage of a Demat account. If you have many SIPs, you need not go to different websites of fund houses.
- Automatic Updates
Investors can have their accounts updated automatically and quickly whenever an investment transaction is carried out. Also, you can track your investments if they are performing easily and know if they are aligned with your financial goals.
- Easy Transmission of Units
A demat account simplifies the process of transmission of mutual fund units to the nominee. You need not visit different AMC offices to process your request. Complete the process online using your demat account.
Direct mutual fund investing through AMC involves different charges, like high expense ratio and purchasing mutual funds through a demat account also is not devoid of charges. All your investment transactions made through demat accounts go into regular mode, and you are liable to pay a commission.
Thus, If you do not need a detailed advisory, then yes, demat accounts can be a more convenient option for mutual fund investing. All you need is an online platform with a stock broker where you can buy and sell mutual funds and all other financial assets without advisory charges. You can keep investing and tracking all your investments on a single screen.