Open a Demat Account to invest in Mutual Funds

Mutual fund investment is one of the best ways to maximize your returns by investing in market-linked instruments. It allows you to avoid the volatility associated with equities and low returns from debt instruments by giving you the best of both worlds.

Mutual fund investment through systematic investment plans (SIPs) have grown by leap and bounds in the last few years as more and more people are moving away from traditional investment instruments.

Total mutual fund asset under management (AUM) was Rs. 43,921 crores in FY 2016-17 and it grew to 1,00,084 crores by FY 2019-20. The mutual funds industry has more than doubled in a span of just 3 years. That’s an astounding growth trajectory and we are just getting started.

Do you need a Demat Account for investing in Mutual Funds?

Opening a demat account is not mandatory to invest in mutual funds. However, as a smart investor you shouldn't be keeping all your eggs in one basket. Meaning, you shouldn’t put all your money in one investment instrument or a single asset class.

Your investment portfolio should be a mix of mutual funds, equities, derivatives, fixed income instruments, commodities, etc. Therefore, to invest in the above mix of asset classes, opening a demat account is mandatory as well as helpful. Once you have a demat account, you can also use the same to hold your mutual fund investments or mutual fund units.

Thus, it allows you to have a single window where you can track and operate your investments, including your mutual fund portfolio.

What is a Demat Account?

Consider a demat account as a vault where all your investments are stored in electronic form. With a demat account you can hold, trade and invest in stocks, mutual funds, IPOs, bonds, derivatives, commodities, ETFs and currency.

You can compare a demat account with a savings bank account which stores your cash. Similarly, a demat account stores all your securities in electronic form so that you can buy and sell them quickly, seamlessly and securely. Demat accounts are operated by the two main depositories in India, NSDL and CDSL.

Most broking agencies will either provide you a NSDL demat account or a CDSL demat account. However, few broking firms such as IIFL provide demat services from both CDSL and NSDL. You also need a trading account along with a demat account to transact in stocks and derivatives.

Demat Account Opening Charges

While some brokerage houses provide demat accounts with zero demat account opening charges nowadays, there are other fees and charges associated with opening a demat account that you should be familiar with.

When you begin investing and trading, your demat and trading account may incur charges such as GST, stamp duty and other charges as mandated by SEBI. Some of these demat account opening charges include:

  • Annual maintenance charges: These are annual charges that require to be paid in advance.
  • Custodian fees: Charges depend on the number of securities held in demat.
  • Demat account transaction charges: They are charged for buying and selling securities from your demat account.

You should opt for a broker that charges the lowest fees and demat account opening charges. For instance, IIFL has the lowest charges and fees for demat accounts. Apart from zero account opening fees, you don’t have to pay annual maintenance charges for the first year. Also, you could be eligible for brokerage cashback up to Rs. 10,000.

Advantages of a Demat Account

A demat account allows you to invest and trade in multiple asset classes seamlessly. Here are its major advantages:

  • It ensures faster and easy price discovery for any security
  • You don't have to worry about loss or damage of physical certificates in storage or transportation
  • A demat trading helps to carry out technical and fundamental analysis of securities
  • Ensures faster clearing and settlement of transactions by clearing houses
  • Eliminates the risk of frauds as a result of forged and fake share certificates
  • Eliminates the risk associated with investing in unlisted shares
  • It helps to reduce the costs of transactions
  • Ensures speed, efficiency and ease in investing and trading

Before opening a demat account….

Before opening a demat account ensure that your brokerage firm, bank or financial institution fulfils these 4 major criteria:

  • The account opening process should be simple, fast and transparent
  • They must have low demat account opening charges
  • A rock-solid trading platform
  • Easy to access and operate
  • High-quality investing insights, data analysis and market research
  • If you are planning to open a demat account to invest in mutual funds, look no further than IIFL. With IIFL’s next-generation trading platform, award-winning research team, intuitive interface and low account charges and fees, you can invest and trade in all types of securities with confidence.

Open Demat Account at IIFL