Is a Demat Account Mandatory for SIP in Mutual Funds? Here’s What You Need to Know
When it comes to investing there are many ways to grow your wealth, many think certain types of accounts are necessary for all types of investments
Demat account mandatory for SIP mutual funds
Demat Account: When it comes to investing there are many ways to grow your wealth. Many think certain types of accounts are necessary for all types of investments but the reality is more flexible. Whether you are a first time investor or looking to diversify your portfolio it’s important to know the various options that exist for hassle free investing in mutual funds.
Firstly, a mutual fund is a pool of money collected from many investors to invest in stocks, bonds or other securities. Each investor owns units of the mutual fund according to their investment.
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But please note that mutual fund investments are subject to market risks, past performance is not a guarantee of future performance.
Do You Need A Demat Account To Invest In Mutual Funds?
Investing in mutual funds is done through both Demat and non Demat accounts. Here’s how it works in both:
What Is A Demat Account?
A Demat account, short for “Dematerialised Account,” is a special type of financial account used mainly for holding and trading of securities like stocks, bonds and other financial instruments. This account is necessary for investors who want to participate in the stock market and trade in securities.
Investing via Demat Account
As mentioned above, a Demat account is an electronic account where your securities like stocks, bonds and mutual funds are held in digital form.
Steps to invest in mutual funds through a Demat account:
Open a Demat Account: If you don’t have a Demat account, you can open one with a stockbroker or depository participant (like Zerodha, Groww, Angel One, etc.).
Link with Trading Account: Most brokers offer a trading account along with the Demat account through which you can buy and sell mutual funds.
Select Mutual Fund: Once the account is set up, log in to the broker’s platform. From there you can select the mutual fund you want to invest in from the available options.
Transaction: You can invest lump sum or start a Systematic Investment Plan (SIP). The mutual fund units will be credited to your Demat account and you can track it through the broker’s app or website.
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Benefits of Demat:
- All your investments (stocks, bonds, mutual funds) are in one account.
- Easy to switch between regular and direct plans.
- You can trade on exchanges.
Cost: There may be annual maintenance fees for the Demat account, transaction fees and brokerage charges.
Investing Without a Demat Account
You can invest in mutual funds without a Demat account through the mutual fund provider’s website or third party apps.
Steps to invest in mutual funds without a Demat account:
Directly through AMC Website:
- Visit the website of the Asset Management Company (AMC) of the mutual fund you want to invest in (e.g., HDFC Mutual Fund, SBI Mutual Fund).
- Create an account and complete your KYC (Know Your Customer) if not done already.
- Once KYC is approved you can select the mutual fund schemes and invest in them. Through Registrar and Transfer Agents (RTAs):
- You can invest via platforms like CAMS or Karvy that allow you to invest in mutual funds across different fund houses without a Demat account.
Third-Party Apps:
- Use Groww, Coin by Zerodha (which also supports non-Demat investments), Paytm Money or PhonePe. These apps have a user friendly interface for investing in mutual funds.
- Transaction Process: Like a Demat account you can invest in lump sums or SIPs. All mutual fund details and transactions will be managed by the AMC or platform you choose.
Benefits of Non-Demat:
- No brokerage or Demat account maintenance charges.
- Direct investment gives you access to lower cost “direct plans”.
- You can manage mutual funds without stock market involvement.
- Cost: No charges but transaction costs may be lower in direct plans than regular plans.
Key Difference
Demat Account: If you want to have all your investments in one place or trade mutual funds frequently.
Non-Demat Account: If you want simplicity, lower costs (direct plans) and don’t need a consolidated investment platform.
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