Guide for opening a Demat Account to start investing 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) has gained popularity by leap and bounds in the last few years as more people are aware and thus 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 was doubled to 1,00,084 crores by FY 2019-20, in a span of just three years.

Will you need a Demat Account to invest in Mutual Funds?

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 i.e. 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 manage your mutual fund investments or mutual fund units

That will enable you to have a single bucket to track and manage all your investments. Having an online trading account along with a Demat Account would be beneficial to trade in stocks and derivatives.

What is a Demat Account?

A demat account operates similarly to a Savings Bank Account. It is a vault where all your investments are stored in electronic form making it easy to buy and sell them seamlessly and securely. With this, you can hold, trade, and invest in stocks, mutual funds, IPOs, bonds, derivatives, commodities, ETFs, and currency. It is monitored and operated by the two main Depositories in India, NSDL and CDSL.

Most broking agencies will either provide you with an NSDL or a CDSL Demat Account. However, few broking firms such as IIFL provide Demat services with both CDSL and NSDL.

Charges to Open a Demat Account

While some broking houses provide Demat Accounts with zero demat account opening charges there are other fees and charges associated with it that you should be familiar with.

Your Demat and Trading Account may incur charges such as GST, stamp duty, and other charges as mandated by SEBI. Listed below are some of the important Demat Account opening charges that you should keep a note of:

  • Annual Maintenance Charge: This is an annual charge that is required to be paid in advance.
  • Custodian fees: This fee would be levied according to the number of securities in your Demat Account.
  • Demat account transaction charges: This is charged when you buy and sell securities using your Demat Account.

You should opt for a broking firm that charges the lowest fees and Demat account opening charges. For instance, IIFL has the lowest charges and fees to open Demat Accounts. Apart from zero account opening fees, you will not have to pay annual maintenance charges for the first year and, you could be lucky to get a brokerage cashback of up to Rs. 10,000.

Advantages of having a Demat Account

Listed below are the advantages of having a Demat Account:

  • You would be assured of faster and easy price discovery for any security.
  • The worry of losing or damaging the physical share certificates in storage or in transit would be out.
  • It will help you to carry out technical and fundamental analyses of various securities.
  • It ensures faster clearing and settlement of transactions by clearinghouses.
  • It eliminates the risk of fraud because of forged or fake physical share certificates.
  • It eliminates the risk associated with investing in unlisted shares.
  • It helps to reduce the costs of transactions.
  • It ensures speed, efficiency, and ease in investing and trading.

Keep in mind before you open a Demat Account

While opening a Demat Account, ensure that your broking firm, bank, or financial institution fulfils the following 4 major criteria:

  • The account opening process should be simple, fast, and transparent
  • They must have low Demat Account opening charges
  • Should be a rock-solid trading platform and should be easy to access and operate.
  • Must have high-quality investing insights, data analysis, and market research

If you are planning to open a open a demat account to invest in mutual funds, begin your journey with 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 carefree.

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