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Sunday 20 September 2020
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IS DEMAT ACCOUNT NECESSARY FOR INVESTING IN MUTUAL FUNDS?

IS DEMAT ACCOUNT NECESSARY FOR INVESTING IN MUTUAL FUNDS?

With technology changing the way we live, the stock market sector has not been left untouched as well. There has been a drastic change since the open trading exchange wherein traders would literally shout prices for stocks to buy or sell shares.  Thus, investors had to hold their shares physically. However, this changed with the introduction of Demat accounts. A Dematerialized account or a DEMAT account is a single place that holds all your shares in an electronic form. A Demat account holds all certificates of your investment portfolio such as bonds, mutual funds, exchange-traded funds, shares and government securities. A DEMAT account has basically simplified trading in mutual funds.

Investors new to investing often wonder if it is necessary to own a Demat account to invest in mutual funds. The answer is no. A Demat account is required for investing in stocks but not for mutual fund investments. This is because there are no physical certificates involved; instead, all records are saved electronically. Although Demat account offers a lot of benefits like paperless transaction, simplified nomination requirements, and cost-effective tool, to name few, it is not required to invest for mutual funds investments. Here’s why:

  1. Trading account not needed
    Opening a Demat account mandates the investor to open a trading account as well which is unnecessary efforts when you can simply invest in mutual funds without going through all these troubles. What’s more, it adds several restrictions and eventually increases the cost of investment.
  2. Illusion that it is the only platform that offers a consolidated view
    A lot of investors justify opening a Demat account as it offers a consolidated view of your investments. However, NSDL now provides investors with a unified view of their investments that includes mutual funds as well.
  3. Restrictions On Nominee
    An investor can only add one nomination to a Demat account which might make the entire process of estate planning quite complicated. If you wish to allocate your assets to more than one person in various proportion, it becomes difficult with a Demat account.
  4. Additional Costs
    Maintaining a Demat account requires one to pay the yearly charges and transaction cost every time they withdraw or make an investment. What’s more, the trading account too might have an extra charge.

Investors should instead look for a platform that acts as a one-stop solution for all their financial requirements, yet keep their options open for other alternate platforms as well. Choosing an ideal platform should entirely depend on the investor’s needs and the cost-effectiveness of the platform. Happy investing!