Why Do You Need a Demat Account to Buy Mutual Funds?

The mutual fund market in India will be worth $1.51 trillion by 2029, says Mordor Intelligence.¹ Investing in mutual funds has become quite a popular choice in the current financial landscape. 

From portfolio diversification to professional management, mutual funds offer convenient access to investors to invest in a variety of securities. With the rising popularity of mutual funds, several ways to hold them also become important. 

One of the avenues to invest in your mutual funds and keep them safe at the same time is via a demat account. Keeping mutual funds in a demat account can help you enjoy several benefits like better security and accessibility. 

But as an investor, you may wonder if demat accounts are a must to buy mutual funds. No, not really. However, using a demat account can save you from a lot of hassle. They can ease your investment journey. Wondering how? Let’s see. 

Understanding Demat Accounts & Mutual Funds

To understand the relationship between mutual funds and demat accounts, let’s first understand what they are. Consider a demat account “dematerialized account” as digital storage for all kinds of securities like bonds, mutual funds, and more in one place. 

Mutual funds are an investment choice for an individual. Generally, they are professionally managed where several investors put their money to invest in a diversified portfolio. 

Now when it comes to the relationship between demat accounts and mutual funds, consider demat accounts as a safe storage for mutual funds. Earlier, before the introduction of demat accounts, investors bought mutual funds and were issued physical certificates for the same. 

With demat accounts, you don’t need to hold these physical certificates, instead, you can easily store them in digital form. And, you get advantages like better convenience and transparency. 

Why Choose a Demat Account for Mutual Funds?

As mentioned, opening a Demat account can help you in several ways. Here are some of the benefits of using a Demat account to buy mutual funds.

1. More Convenience 

Demat accounts help you keep all your investments safe in one place. Buying, selling, or redeeming your mutual funds becomes super easy. Getting everything done with the same account eases money management while helping you make better investment choices. 

2. Greater Accessibility 

By opening a demat account, you ensure your physical certificates are stored in digital form. Thus, you may access them anytime and anywhere. Plus, you get to make fast and seamless payments. 

3. Enhanced Security 

A Demat account is also noted for its enhanced security. By storing all your mutual funds online, you eliminate the chances of any kind of physical theft and loss. Plus, they are also secured from physical wear and tear over time. 

4. Better Transparency

With demat accounts, you not only get to keep a regular check on your mutual funds but all the other securities and transactions can also be closely monitored. Thus, with reduced hassle, you get enhanced transparency. 

5. Power to Add a Nominee

Demat accounts also allow you to add a nominee. This facilitates the transfer of funds in case of unexpected situations. 

How to Open a Demat Account? 

Now that you know the several benefits of having a demat account, having curiosity about the demat account opening process is understood. Here is how you open a demat account:

• Select a depository participant or DP of your choice. Consider picking the one that matches your financial goals and requirements. 
• Fill out the account opening form provided by your DP. Here, you need to log in all your necessary details along with essential documents like PAN card, identity, and address proof. 
• Complete the agreement by reading all the terms and conditions and finally sign and submit it to the DP. 
• Upon successful assessment and verification of your details, you will receive a unique client code and your demat account opening process will be complete. 

Wrapping Up

Having a demat account can help you in several ways. With a variety of benefits like better transparency, and consolidation of all your securities, a demat account stands as an attractive choice for investors. However, you do not always need to have a demat account to buy mutual funds and the decision rests on your individual preferences based on your financial goals and planning. 

In addition to demat accounts, investors can also choose to invest in mutual funds via other avenues and online portals. Choose what best matches your preferences and start investing!