Open a Demat Account Before Investing in Mutual Funds?
Mutual funds provide returns depending on the asset classes and investment strategies chosen by investors as well as their willingness for risk. A demat account may not be necessary for everyone to invest in a mutual fund scheme, however.
Sudheer M, a Sebi-registered financial advisor, recommends against creating a demat account because of the added fees. “I would prefer that fund houses be the only middleman receiving a share. There is also an annual maintenance charge for the demat route. He advises investors to contact fund companies directly or utilise websites like MF Central or MF Utility for direct planning.
The much-touted benefit of a Demat account is that it enables monitoring of all mutual fund assets in a one location, but according to Sudheer, MF Central and MF Utility both provide the same ease. These portals provide a user-friendly experience by displaying all folios.
“Like a demat account, you may access all of your MF folios under MF Central. A demat account is helpful, however, if you want to view your stock holdings in addition to your MF assets, according to Sudheer.
A centre for investor services, MF Central is powered by KFintech & CAMS and allows for transactions across various folios. Under the auspices of the Association of Mutual Funds in India (AMFI), Mutual Funds Utility (MFU) serves as a transaction aggregation platform, allowing for a single payment for investments made across numerous mutual funds. Both portals provide thorough information on plans and investments from various fund institutions.
Account Demat
Stocks, mutual funds, exchange-traded funds (ETFs), and bonds are all stored in dematerialized form in a demat account. Demat accounts are offered in India by the depositories, National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). In order to make the keeping and transfer of investment units easier, depository participants like banks and brokers function as middlemen between depositories and investors.
To invest in mutual funds using a demat account, you also need a trading account. Investors may purchase mutual funds via brokers after completing the know-your-customer (KYC) procedure and opening a demat account.
The Advantages Of Demat Accounts
Having a Demat account makes monitoring and managing assets easier by giving you a consolidated picture of your holdings. Instead of visiting many platforms of the fund companies, the consolidated information in a single account makes it easier for nominees to maintain track of their holdings.
Cons
Demat accounts are subject to expenses, including brokerage costs, transaction costs, and yearly maintenance costs. The costs could differ across brokers. For instance, ICICI Direct claims that its clients must pay Rs. 700 annually for Demat account maintenance; nevertheless, the first year is free of charge.
For creating an online demat account, several brokerage and trading platforms, including Upstox, offer to waive maintenance and commission fees. When you invest in mutual funds or initial public offerings, there is no fee, claims Upstox.
Additional Options
The website of an asset management business may provide direct investing opportunities. You must submit an application form, a copy of your PAN card, and KYC papers using the mobile apps that AMCs now provide since they are speedier. The business will provide you a PIN and folio number after your application is accepted so you may manage your assets.
A few websites also provide the option to invest in direct programmes. “However, such online portals are run by private firms that offer robo-advisory financial planning services, usually for a fee, which could be per year or transaction,” AMFI claims.
Similar advantages to Demat accounts are also provided by MF Central and MF Utility. For mutual fund investment, creating a Demat account offers advantages including consolidated holdings and simplicity of nomination. However, before making a choice, investors should weigh the costs involved and look into other investing choices.
The Last Word
It is not necessary to register a demat account if all of your investments will be in mutual funds. You only need a demat account if you want to invest in ETFs. The good news is that fund houses enable investors to purchase ETFs through the fund-of-fund mechanism, regardless of whether they wish to purchase commodities ETFs like gold and silver or any other thematic or index ETFs. For non-demat consumers, all fund companies provide fund-of-fund programmes.
