Most investors are asked to consider Mutual Funds to grow their savings. There are different types available for investment. However, when people make Mutual Fund Investments, there is confusion about whether you need a Demat and Trading Account.
Demat Accounts are online repositories of the financial investments held by individuals. It is an account that stores financial instruments digitally like Equity, Mutual Funds, Derivatives, etc. They work like Bank Accounts. The balance and value are accessible online anytime. The Demat Account also shows the current market value of each security. The past transactions are also visible online.
However, among all the instruments, there is always a question if to open Demat Account for Mutual Funds.
Is it necessary?
There are rules necessitating opening an account for making Mutual Fund Investments. This means the investor can directly invest through an intermediary or through the Mutual Fund house. It is possible to go to the Asset Management Company’s website and transact directly online. Some companies invest in Mutual Fund Direct Plans without commission which offers higher returns on investments.
When you hold the units in the Demat Account, you get the consolidated holding under one place, and the Know Your Customer or KYC requirements are taken care of too. The broker manages all communications with the fund house. However, when you invest directly through multiple AMCs, you need to manage compliances for them individually.
Mutual Fund Investments through Demat Account
When you invest via Demat Account, you cannot start the Systematic Transfer Plan or STP and Systematic Withdrawal Plan or SWP. These concepts are what the investor may want when they begin their Mutual Fund Investment journey. Many depository participants or DPs offer Mutual Funds purchases through Demat Accounts. However, other charges are associated with them.
Most DPs do not charge any fees for purchases made via Demat Accounts. There are fees on debit transactions or sale transactions of Mutual Fund units. DPs also charge for the conversion of existing fund units to Demat units. There are also costs involved in the reconversion of Demat units into online fund units. This differs between companies.
It is possible to make Mutual Fund Investment without Trading Account through online companies. These companies manage every fund folio in one account and smoothen portfolio management. Ultimately, the decision on how to invest in Mutual Funds is convenient. Depositories have started sending investors a Consolidated Account Statement with all investments clubbed under one PAN number.
This has greatly reduced the need to invest in Mutual Funds through Demat. Now, decide based on how convenient each alternative is for you. However, remember that investing in a direct plan produces higher returns than investing in a regular plan, as in the latter, you need to pay commissions.