Those of you who have made investments in mutual funds must have come across the term Demat or Demat Account.
A demat account is a digital account that keeps dematerialized securities safe in electronic custody.
From stocks to mutual funds, demat accounts facilitate seamless investments. However, you might wonder whether a Demat account is a compulsory requirement for mutual funds as well or not.
If you’re also stuck in such confusion, then we’re here to answer your question with this blog.
In this article, we will cover“Is demat account required for mutual funds?” and clear all the doubts regarding it. Let’s get into it!
What is Demat Account?
A Demat Account is a digital account that keeps dematerialized shares and securities such as equities, mutual funds, bonds, and exchange-traded funds (ETFs) safe.
Keeping everything updated electronically, Demat Account prevents typical inconveniences involved with physical shares such as mismatched signatures, forgery, bad delivery, and many more problems.
This is why Demat Account has become quite popular for both beginner investors as well as professional investors.
One of the two central depositories in India, namely National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are responsible for holding your Demat Account under their name.
Is Demat Account Required for Mutual Funds?
The one-word answer is no. A demat Account is not mandatory for making investments in mutual funds.
However, you must have seen most of the brokers insist upon their usage. This is because, even if you do not need a demat account to invest in mutual funds, it can be of great help to have one nevertheless.
There are two ways to hold and buy mutual funds. One way is the physical form and the other way is making use of dematerialized form.
It is this dematerialized form where Demat Account comes into action as Demat is short of the dematerialized form itself.
It is not compulsory, people tend to choose the dematerialized form over the physical one. To hold mutual fund units in dematerialized form, you need to have a Demat account opened with a depository participant (DP).
Moreover, you don’t have to make a different demat account for mutual funds if they already have one. They can easily use the existing demat account to hold all the information about your investment in one space online.
While it is convenient to use demat accounts as they bring with them multiple benefits, it ultimately depends on the investor to make the final call.
Advantages of a Demat Account for Investing in Mutual Funds
Using Demat Accounts for investing in mutual funds instead of physical forms has its unique benefits. Let us know more about those advantages.
Convenience
With a Demat account, you can hold multiple mutual funds in one place and prevent the hassle of physical forms.
Not only does this make managing securities easy but also helps in focusing on the ways to increase sales.
Along with that, demat accounts also offer easy tracking of investments which play an important role in increasing profits.
Safety and Security
After convenience, safety is the prime factor to be considered when getting associated with investment-related applications.
Demat accounts take that factor into account and provide you with the ultimate electronic protection required to safeguard your deals. Being electronic, demat accounts reduce the risk of forgery and theft from their end.
Cost-Effective
Demat accounts mostly have lower transaction costs when compared to traditional paper-based transactions.
Moreover, it reduces the risk of problems such as forgery, theft, and signature mismatch that often happens with physical form.
This eliminates the need for physical paperwork, making the process efficient and cost-effective.
Efficient and Diverse
Demat account primarily aims to provide seamless transactions and efficient work done. Along with mutual funds, one single demat account holds all of your securities, including equities, bonds, ETFs, and mutual funds so it is as diverse as it could be.
Personal details like address, mobile number, and bank details automatically get updated in the Demat account preventing any kind of drawback.
Overall, a Demat account simplifies the process of investing in mutual funds and provides added convenience, security, and efficiency.
If you are looking to open a free demat account, consider Dhan. With Dhan, you can also directly invest in mutual funds without opening a demat account.
Investing in mutual funds is mostly flexible and therefore, the investors are free to hold their units in demat accounts but that doesn’t mean it is an important requirement.
Conclusion
Demat Accounts are surely an easy way to invest and hold securities. However, it is not mandatory for mutual funds.
Investors are free to make their choice, whether or not they want to invest in mutual funds via a demat or investment platform.
