Investing In Mutual Funds Through Demat: Process, Pros, And Cons (2024)

The demat account is an account which safely stores your investments in a digitized and electronic format. A demat account acts as a link between the depository and the investor. Along with a demat account, a trading account facilitates the buying and selling of securities. The trading account is like a link between a bank account and a demat account.

Process of Investing in Mutual Funds through Demat

The process of mutual fund investment through a demat account is relatively straightforward.

• The first step involves opening a demat account. The account can be opened online or through offline means.
• An individual can open a demat account with a depository participant such as a broker which provides the facility to invest in mutual funds.
• In order to successfully open the demat account, one needs to finish the KYC process by providing the required documents.
• After a demat account has been opened, one can invest in a mutual fund by placing an order through the broker’s website or application.

Advantages of Investing in Mutual Funds through Demat

• One of the primary advantages of mutual fund investment through demat is the cost benefits that an investor gets. Since transactions are done digitally, an investor can save money on stamp duty.
• A demat account can make investing extremely time efficient. Online transactions take place almost instantaneously which makes investing in mutual funds a quick process.
• Investing through a demat can help you store, track and manage all your investments including mutual fund units easily. With the help of the internet, an investor can place orders to buy or sell their investments from anywhere.
• Mutual fund investors also get their statements of investments made on a regular basis.
• Apart from mutual fund investments, an investor can invest in the share market by purchasing stocks through a demat account as well.
• An investor can also invest in mutual funds through SIP which is a major advantage of a demat account. This makes investing more accessible for individuals with smaller capital.
• There are numerous mutual fund schemes available for an investor. An investor can easily get information, research and invest in various kinds of mutual fund schemes online.

Disadvantages of Investing in Mutual Funds through Demat

Although investing in mutual funds through a demat offers various advantages, there are some drawbacks as well.

• An investor has to pay an annual maintenance fee or cost. This cost is levied by all brokers and financial institutions. Regardless of the number of securities, the charge needs to be paid.
• Since dematerialization is heavily reliant on technology, it requires an investor to have access to the internet and a device to manage their mutual fund investment. Furthermore, any glitches or bugs can make the investment process more unpleasant.

Having a demat and trading account has made investing incredibly accessible for individuals regardless of their location. It is a time-saving and convenient way to invest in the stock market. Investors can track the performance of mutual funds and various stocks listed on the NSE and BSE. Apart from the minor drawbacks, investing is seamless with the help of a demat account. Just like any other investment, it is critical for an investor to carefully analyze and know the various risks associated with mutual fund investments.

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Published: 27 Jan 2023, 07:52 PM IST