Don't Have Demat Account? Can You Still Invest In Mutual Funds?
Don't Have Demat Account? Can You Still Invest In Mutual Funds?
When you invest in mutual funds, you are assigned a unique folio number.

Mutual funds are a type of investment vehicle where investors pool their money, and a professional fund manager manages the investments on behalf of the investors. When you invest in mutual funds, you are allocated units in the fund, and these units represent your share of the fund’s holdings.

Mutual fund investments can be made through various methods, and the process is relatively straightforward. Before you can invest in mutual funds, you need to be KYC-compliant.

Also Read: Investing SOS: Missed Mutual Fund SIP? Must Read What Happens After That

However, is it mandatory to have a demat account to invest in mutual funds?

What Is A Demat Account?

A demat account, short for “Dematerialised Account,” is a specialised type of financial account used primarily for the electronic holding and trading of securities such as stocks, bonds, and other financial instruments. This account is essential for investors looking to participate in the stock market and trade in securities.

In India, there are two primary depositories: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). To open a demat account, you can choose either of these two depositories. These depositories have authorised several entities to serve as Depository Participants (DPs), acting as intermediaries connecting investors with the depositories.

For any account-related services and communication, investors engage with the DPs. They are the primary point of contact for addressing service-related inquiries and handling correspondence regarding the account.

Mutual fund investments can be held in either a demat account or an investor folio. Mutual funds are typically held in what is called a ‘foliometric’ or ‘non-Demat’ form.

Here’s How It Works:

Folio: When you invest in mutual funds, you are assigned a unique folio number. This folio number is associated with your investments in that particular mutual fund scheme. Your investments are tracked and managed using this folio number.

Statement of Account: The Asset Management Company (AMC) or its registrar and transfer agent (RTA) maintains a record of your investments. They provide you with periodic account statements that detail your holdings, transactions, NAV (Net Asset Value), and other relevant information. These statements serve as proof of your investments.

Redemptions and Purchases: When you want to buy or redeem mutual fund units, you typically do this through the fund’s website, the registrar, or an authorised distributor. The transactions are recorded in your folio account, and the units are allocated or redeemed accordingly.

Is Demat Necessary For Mutual Funds?

While it’s not mandatory to have a demat account for mutual fund investments, some investors may prefer to hold their mutual fund units in demat form for the sake of convenience, especially if they already have a demat account for holding stocks and other securities. This can streamline the management of their overall investment portfolio.

However, there are some advantages to holding mutual funds in a demat account, such as:

Convenience: You can hold all of your investments, including stocks, bonds, and mutual funds, in one place.

Tracking: It is easier to track your investments and make informed decisions when you have all of your holdings in one place.

Statements: You can get a single statement from your demat account provider that shows all of your mutual fund holdings.

Online access: Most demat accounts offer online access, so you can manage your investments from anywhere.

However, whether or not to use a Demat account for mutual fund investments is a matter of personal choice. You can invest in mutual funds without a demat account by using the folio account provided by the fund house.

Most mutual funds offer the option to invest without a demat account. You can directly invest in these mutual funds by completing the necessary paperwork (KYC) through the fund house or their authorised distributors.

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