When it comes to investing, there are multiple pathways available for individuals seeking to grow their wealth. Many assume that certain types of accounts are necessary for all forms of investments, but the reality is more flexible. Whether you’re a first-time investor or someone looking to diversify your portfolio, it’s essential to understand the various options that exist for hassle-free investing in mutual funds.
Firstly, a mutual fund is a pool of money collected from various investors to invest in stocks, bonds, or other securities. Each investor owns units of the mutual fund based on their investment.
However, readers must note that mutual fund investments are subject to market risks, and past performance is not indicative of future results.
Do You Need A Demat Account To Invest In Mutual Funds?
Investing in mutual funds is done through both Demat and non-Demat accounts. Here’s how it works in both cases:
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.
Investing via Demat Account
As mentioned above, a Demat account is an electronic account that holds your securities like stocks, bonds, and mutual funds in digital form.
Steps to invest in mutual funds through a Demat account:
Open a Demat Account: If you don’t have a Demat account, you can open one with a stockbroker or depository participant (like Zerodha, Groww, Angel One, etc.).
Link with Trading Account: Most brokerage firms offer a trading account along with the Demat account, which allows you to buy and sell mutual funds.
Select Mutual Fund: Once the account is set up, log in to the broker’s platform. From there, you can select the mutual fund you want to invest in from the available options.
Transaction Process: You can choose to invest a lump sum or start a Systematic Investment Plan (SIP). The mutual fund units will be credited to your Demat account, and you can monitor them through the broker’s app or website.
Benefits of Demat:
- All your investments (stocks, bonds, mutual funds) are consolidated in one account.
- Easy to switch between regular and direct plans.
- You can trade on stock exchanges.
Costs: There may be annual maintenance fees for the Demat account, transaction fees, and brokerage charges.
Investing Without a Demat Account
You can invest in mutual funds directly without a Demat account using the mutual fund provider’s website or third-party apps.
Steps to invest in mutual funds without a Demat account:
Directly through AMC Website:
- Visit the official website of the Asset Management Company (AMC) whose mutual fund you want to invest in (e.g., HDFC Mutual Fund, SBI Mutual Fund).
- Create an account, and complete your KYC (Know Your Customer) formalities if not done already.
- Once KYC is approved, you can select mutual fund schemes and invest in them.Through Registrar and Transfer Agents (RTAs):
- You can invest via platforms like CAMS or Karvy that allow you to invest in mutual funds across different fund houses without a Demat account.
Third-Party Apps:
- Use platforms like Groww, Coin by Zerodha (which also supports non-Demat investments), Paytm Money, or PhonePe. These apps provide a user-friendly interface for investing in mutual funds.
- Transaction Process: Similar to a Demat account, you can invest in lump sums or SIPs. All mutual fund details and transactions will be managed directly by the AMC or platform you choose.
Benefits of Non-Demat:
- No need for brokerage or Demat account maintenance fees.
- Direct investment gives access to lower-cost “direct plans.”
- Can manage mutual funds without stock market involvement.
Costs: No maintenance fees, but transaction costs may be lower when investing in direct plans compared to regular plans.
Key Difference
Demat Account: Suitable if you want to consolidate all investments in one account or frequently trade mutual funds.
Non-Demat Account: Best if you prefer simplicity, lower costs (direct plans), and do not need a consolidated investment platform.
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