Is Demat Account Mandatory In Mutual Funds?

A Demat account or Dematerialized account is an electronic way of holding or transferring funds. Earlier investors used to hold the share certificates physically. After the introduction of Demat, investors started storing certificates in electronic form.
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  • 07 Feb 2023
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A Demat account is mandatory for stocks but not for mutual funds.

A new product of SIP in Stocks is now being offered. This works similar to SIP in Mutual Funds. There is typically a basket of stocks and the investor can fix a specific amount to be invested in those stocks. The weight assigned to every stock might change depending on the product provider. Since this investment is in stocks, a Demat account is required.

In general, it’s advisable to have a Demat account but it ideally depends on the requirement of the investor. There are several benefits of holding a Demat account.

Benefits Of Demat Account

There are a number of benefits of holding a Demat account -

  • An investor wouldn’t need to fill multiple form or documents each time they buy a fund. In other words, if you are investing in mutual funds or any other scheme you don’t need to submit separate documents of each.
  • It eases the process of buying, selling, and managing funds.
  • Demat offers a single statement for all mutual fund holdings across fund houses.
  • With electronic holdings, there are no chances of thefts, fake shares or any other malpractices, which were noticed in physical holdings.
  • Eliminates the mismatch in bank accounts and address.

However, there are a few drawbacks of holding a Demat for mutual funds.

  • A Demat account has a maintenance fee. The fee varies from broker to broker. So, if you want to invest in mutual funds, where Demat is not mandatory, you can save up this cost.
  • There is only one nominee option in this account. Also, an investment cannot be held jointly, if the Demat account is in the name of a single person.

If you want to invest mutual funds and are fine with the limited drawbacks, you can go for it. With a Demat, you can hold multiple investments, which can be convenient for you. If you want to open a Demat account, you can opt for 2-in-1 accounts, which act as both trading and Demat account.

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