Investing in Mutual Funds Through Demat: Process, Pros & Cons
Investing in Mutual Funds Through Demat: Process, Pros & Cons

Investing in Mutual Funds Through Demat: Process, Pros, and Cons

Mutual funds prove to be among the most utilised instruments for investment by both beginners as well as professionals. Mutual funds investment is considered among the safest strategies when it comes to investment because of the amount of diversification that is offered with it.

Process of Opening Demat Account For Investing in Mutual Funds:

Opening a demat account for mutual funds is also relatively hassle-free and easier. After selecting a DP for ensuring the best demat account for mutual funds, submit a form for  account opening  with all requisite documents like identity proof, passport size photos and residence proof. PAN card and in-person verification is compulsory. You will get the document for terms/conditions with charges for the account after submission is completed. The DP staff will verify documents provided. Password and account number to access and open the demat account online is received after completion of this process.

Demat account, in the simplest of terms can be defined as an account which is used for holding securities in a dematerialised form. This account holds exchange-traded funds, shares, bonds, mutual funds,and securities of the government. While a demat account isn’t mandatory for investment in funds, trading or investing shares need such an account.

Pros of Investing in Mutual Funds with Demat Account:

  • Demat account enables you to hold a central place to store all the investments that you own.
     
  • Institutions, banks and brokers function as participants of the depository or more commonly referred as DP. These depository participants additionally offer facilities for converting the physical instruments to electronic credit within the DP account.
     
  • There are multiple Benefits of having an Online Demat Account which otherwise were not available with the storage of investment records in a physical form.
     
  • Apart from keeping all of the investments at one place, these demat accounts also get updated automatically each and every time that a transaction is carried out.
     
  • Maintaining certificates of investments has been made risk-free with the use of demat as there remains zero chances for any physical loss or damage.
     
  • While overall cost associated with the transaction is reduced, purchasing of mutual funds as well as any other instruments is now much more secure due to demat accounts.
     
  • Demat account takes out any chances of thefts, fake shares or any of the other malpractices that were rampant with the use of physical form of paper documents for investing and trading.


Cons of Investing in Mutual Funds with Demat Account:

  • The account holders of demat accounts can become the soft target for internet frauds when they fail to be tech-savvy and diligent.
     
  • Due to lack of technological knowledge, such account owners depend on external sources or parties for assisting them, who might not be very trustworthy.
     
  • A cost along with a maintenance fee that is charged by brokers may vary with every year. However, this fee differs from broker to broker.
     
  • If you open a demat account, you would need to pay all of the additional charges along with the maintenance fee even though you hold one single share.
     
  • There are many instances where investors are not very meticulous when it comes to reading the underlying conditions and terms attached with the closure for their account. As a consequence, they have no option but to clear all the dues along with the interest accompanied with them when their respective account has become dormant.


Conclusion

While investing in Mutual funds, it is important to keep the aforementioned points in mind and make a decision accordingly. This research can go a long way in making better investment calls.

Related Blogs: How to Analyse Mutual Funds for Big Returns | Things to Know Before Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account

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