Mutual funds are gaining more popularity, and we are sure you have more doubts. In this article, we will answer an important question; is demat account required for mutual fund? Let us get started.
Before we get into answering is demat account required for mutual fund, let's break it down and get to know what mutual funds and a Demat account are in the first place.
What Are Mutual Funds?
A mutual fund is an investment vehicle in which a group of investors pools their funds to get a return on their investment over time. This pool of funds is managed by a professional investor known as a fund manager or portfolio manager.
To maximize returns, they must invest cash in various securities such as bonds, equities, gold, and other assets. The fund's profits (or losses) are divided among the investors in proportion to their contributions.
What Is A Demat Account, And How Does It Work?
A Demat account is simply a storage facility for electronic shares. A Demat account converts shares from physical to electronic form, dematerializing them. Once you open a Demat account, you'll be given a Demat account number, which you can use to trade online.
Like a bank account, a Demat account keeps track of your funds and lets you deposit and withdraw them. Your Demat account, which is debited and credited, also holds the assets. To open a Demat account, you don't need any shares; in fact, your account may have no balance at all.
Now that you know what these mean, let us get into the answer to the main question, is a Demat account required for mutual fund?
Is Demat Account Required For Mutual Fund?
In order to invest in mutual funds, you do not need a Demat account. The sole requirement is that you complete the KYC procedures. You do not need to re-submit your KYC documents for future investments once you have registered with AMC or authorized intermediaries.
You can purchase mutual funds without having a Demat account in the following ways:
A broker is a person who helps you open a Demat account so you can trade on the stock exchange. If you want to invest in several investment vehicles such as mutual funds, stocks, bonds, and other securities, you need to open a Demat account to keep track of all your holdings in one place. Annual maintenance fees and transaction fees for Demat accounts vary depending on the broker.
Asset Management Company (AMC)
Through their websites, one can invest directly in the mutual funds of the respective AMCs. The disadvantage is that you can only invest in mutual funds offered by that AMC and no others. This mode restricts your ability to invest in a variety of other mutual funds offered by other AMCs, making it less appealing.
The most frequent way to invest in mutual funds is through a bank. Banks also act as mutual fund agents, so they're the best place to go if you're unsure which mutual fund to invest in.
A Demat account is not required when an account is created only for the purpose of holding non-equity assets such as ETFs and gold. ETF and gold ETF trading can be done with a trading account rather than a Demat account.
It is also possible to trade futures and options without having a Demat account. These trades can be carried out using the trading account. It's worth noting, though, that the trading account can't be used to hold stocks.
We hope this article about is demat account required for mutual fund? Helpful for you! All the best for your future investments.