There is little doubt that mutual funds are one of the best investment options for individual investors. It is a highly flexible investment option that can cater to different investors’ requirements, such as building wealth, providing a source of regular income and fulfilling their financial goals. Depending on the category, mutual fund schemes invest in various asset classes, such as stocks and bonds.
And, speaking of direct equity investments, you will need a demat account to keep your stocks in a dematerialised form. However, you don’t need a demat account to invest in mutual funds.
For instance, when investing in other investment options, you must keep the physical certificates handy for future reference. However, it is not the same with mutual funds. It is because investors get a monthly statement of their accounts and can check their investments online by logging in to the respective fund house’s websites or their aggregator platform.
One can also buy and sell mutual fund investments through these online platforms. So, it is not required, and you can invest in mutual funds without a demat account.
But, if you are interested in investing in mutual funds through a demat account, this article is for you.
A demat account is an account that holds your securities, such as stocks, mutual funds, ETFs and bonds, in a dematerialised form. Depositories and depository participants are two stakeholders associated with demat accounts.
National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are two depositories in India. If you have a demat account, it is either provided by NSDL or CDSL. The depository participants, such as banks, brokers and other financial institutions, act as the bridge between these depositories and investors. They provide the platform to hold your investment units in dematerialised form and convert physical units to dematerialised form.
In addition to a demat account, you will need a trading account to buy and sell securities.
If you want to open a demat account, you can open the demat account online or offline. You can reach out to a broker that offers mutual fund investments through their demat account. You might have to share the required documents to complete the KYC process. You can start investments after your account is opened.
Advantages of investing in mutual funds through demat account
Let us look at the top three benefits:
Get a consolidated view of your mutual funds
Most of us don’t invest in schemes from just one fund house. We invest in multiple schemes from different fund houses. And we also have to check the performance of these funds regularly. And, if you have invested in several funds from different fund houses, you have to remember all the log-in details. You might invest in mutual funds through two or more aggregator platforms. In that case, you have to note their log-in details.
So, when you invest in mutual funds through a demat account, you can see all your holdings in one place. You can also research and invest in different funds from your demat account. Having different touch points might be confusing, and you might keep postponing reviewing your investments.
Moreover, if you invest in direct stocks, you can also see your holdings on one platform.
Seamless succession planning
We can’t predict our future. But we all want to ensure that your children and spouses don’t have to face any financial woes after our untimely demise. And the best way to make sure of that is by adding their names to your will. Moreover, if you don’t have a will, you must ensure that your spouse and children know your investments.
It might be difficult for everyone if the investments are scattered across different accounts. But, when you invest in mutual funds through a demat account, you need to share your demat account details with your family members. Moreover, you just have to share your demat account number in the will.This makes succession planning very seamless and easy to navigate.
Ease of nomination
When we talk about succession planning, we can’t ignore the nomination. With the demat account, you don’t have to keep manually adding nominees to all your mutual fund schemes. You can nominate up to three people in your demat account and put a percentage next to their name.
So, after your demise, the mutual fund assets will be distributed among the nominees as per the mentioned percentage. Your family members don’t have to face financial hurdles after your demise as they are already aware of your demat account.
Having a demat account is not a must for mutual fund investments. But, if you already have a demat account for investing in direct stocks and bonds, you can easily invest in mutual funds through it. Moreover, you can also look at it if you want the convenience that comes with the demat account.
However, it is important to note that you will demat account to invest in Exchange Traded Funds (ETFs) that are offered by fund houses.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.