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Open a Demat Account to Invest in Mutual Funds

Mutual funds are one of the most popular investments. Investors pool money into a mutual fund to invest in stocks, bonds, and other securities. Mutual funds offer a high level of diversification, convenient investment methods, and the expertise of fund managers.

The introduction of 3-in-1 accounts, with Demat, savings, and trading functions, has made it easier to invest in mutual funds. The process of opening an account is also simple and hassle-free. 

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Before you open a Demat account to invest in mutual funds, you must have some information about it.

What is a Demat account?

A Demat account stores your holdings in a digital or dematerialised form. It is an intermediary between the account holder and the two Indian depositories - the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). The idea originated in 1996, after which the physical share certificates of investors were converted into electronic form for storing in the Demat account.

You can open a Demat account with a Depository Participant (DP) to hold, trade, and invest in securities, such as stocks, mutual funds, commodities, derivatives, Initial Public Offerings (IPOs), Exchange-Traded Funds (ETFs), and currency.   

Benefits of opening a Demat account

While the account isn’t essential for making mutual fund investments, it offers many other benefits. 

  1. The account is a centralised repository of all your investments and makes it easier for you to track and manage your assets in one place
  2. A Demat account stores mutual funds in electronic format and eliminates the chances of theft or physical damage 
  3. It allows you to access the performance of all your mutual fund holdings from different schemes in a single statement 
  4. With an online account, you can perform transactions quickly and seamlessly, unlike earlier, when investments were stored physically 
  5. A Demat account makes nomination easier. It passes all your mutual funds and investments to your legal heir smoothly 

Steps to open a Demat account

  1. Pick a DP after researching options available in the market. You must choose DPs registered with the Security and Exchange Board of India (SEBI). Check experience, credibility, scope of services, and brokerage charges to ensure you select a suitable one 
  2. After selecting the DP, fill out an account opening form. Submit necessary documents like proof of identity, proof of address, PAN Card, bank details, passport-sized photographs, etc. 

Note: Submitting the PAN Card and bank details for opening a Demat account is compulsory. 

  1. Once your documents are submitted, you will receive all the terms and conditions of the Demat account 
  2. You will be requested to complete an in-person or digital verification
  3. After your application is approved and verified, the DP will send you user login credentials 

What are the Demat account charges?

A Demat and trading account can incur Goods and Services Tax (GST), stamp duty, and other SEBI-mandated charges. You will also have to take care of the following:

  • Annual Maintenance Charges (AMC) - Account holders must pay this in advance for one year. 
  • Transaction charges - You pay these charges when you use your Demat account to buy and sell securities. 
  • Custodian fees - This fee depends on the number of securities held in your Demat account. 

Conclusion

Demat accounts are a convenient way to invest in mutual funds. A DP can help you with the process of opening a Demat account. You can use it to store, manage, and trade securities seamlessly and securely. The account is accessible from anywhere and at any time. It also lets you appoint a nominee to whom your investments will pass on in case of an unfortunate event.  

Start your journey with Motilal Oswal to open a Demat account and invest in mutual funds.

 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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