Is Demat Account Required for Mutual Funds?

Do you have a bank account? Your instant answer would be, "obviously!" Who could live without one in 2022, right? We aren't going to say the Demat account is the same. But, if you are investing in the stock market - it would play a vital role. What a Demat account is, what's the function of it, how to get it, and why you need it - we'll find out as we go on. But, if you are a beginner in the stock market, it's quite crucial you know everything about a Demat account. This stands especially if you are thinking about investing in mutual funds.

What is a Demat Account?

A Demat account is basically an online account that you could use to hold your securities in a digital format. It can be utilized to hold various types of securities like stocks, bonds, mutual funds, and much more. It is quite easy to use, and it will also offer you a lot of conveniences.

Now, you have to remember that it is not mandatory for an investor or a trader to have a Demat account.

But it sure makes things much easier to handle.

What is the Need for a Demat Account?

Many people wonder whether they would need a Demat account for investing in Mutual funds - and also, it is quite important to know that a Demat account is only mandatory for investing in stocks and no other security. While you do not need the account to buy yourself some mutual funds, it will surely help you to have one.

Why Do Investors Need a Demat Account?

There are various reasons why you need to have a Demat account, one of those reasons being the fact that you could possibly open Demat account online from the comfort of your home. These are some of the most crucial causes why you need a Demat account:

● The account will give you a common place to hold all of your investments, and it makes it simpler to track and manage your money and make a better investment choice to reap the best returns.

● You could also get a single statement to see all of your mutual fund holdings from varied schemes in your account.

● Having an online account will give you great accessibility. You could carry out fast and effortless transactions as opposed to storing them physically.

● You could also add a nomination to your Demat account and enable a smooth transfer of units to them in the unfortunate events of your demise.

● A Demat account gives you much better security options.

● Your data will always be secure. There would be no possibility of a physical loss or damage to the important documents, certificates, and much more.

● Using the account will also minimize the chances of falling victim to theft and scam.

Do Mutual Fund Investors Need a Demat Account?

This is a question a lot of people who want to invest in mutual funds ask.

The arousal of this question is from the vast accessibility and boom of mutual fund investments in the last five years - or, to be precise, during the breakout of the pandemic.

Why did mutual funds gain more popularity lately?

The short answer to this is because there was easy access to the internet, and it could be done online.

During the pandemic breakout - people were restricted from leaving the house, and the only outside world access given to them was through the internet. Though given access to the internet, it was not easy for everyone to invest in stocks. That is because stocks are much riskier, and they also need much more expertise than a beginner. But, mutual funds, on the other hand, did not have that issue. Even a beginner could easily invest in mutual funds and make money.

Moreover, the easy opening and registering for AMCs also gave rise to more fund companies in the market as they usually would be. All of these factors - gave rise to more investors and gained the popularity of mutual funds.

How to Open a Demat Account Online?

Before you go ahead to open your first Demat account, you might want to have some things handy. Your KYC Documents. If you are wondering what KYC documents are, you do not have to worry; your KYC documents are the ones that prove your ID. It also stands for - know your customer.

Once you have your KYC documents in hand, you can go ahead and start with the process.

Step 1: The very first and most crucial step in opening a Demat account would be to choose a depository participant (DP). Banks, online investing platforms, and stockbrokers can assist you in finding the best DP services accessible in the country. When choosing a DP - ensure that the service provider's offerings and functionalities match your requirements.

Step 2: In order to open a Demat account - go to your DP's portal and finish the online Demat account opening form. You could open both - a trading and a Demat account with several depository participants.

Step 3: Following the completion of the Demat account application, the Know Your Customer (KYC) procedures must be completed. KYC documents like the proof of identification, bank account statement, proof of address, and proof of income must be scanned. It is preferable to have all of this relevant paperwork in your hand before applying since this will speed up the procedure.

Step 4: After giving your KYC information, you must complete an 'In-Person Verification' process (IPV). This is an important task to conduct in order to verify the accuracy of your records. Depending on your DP, you may be required to present in person at either of your service provider's offices. On the other hand - many depository participants now offer IPV services via webcam or smartphone.

Step 5: Following verification, your Depository Participant will ask you to sign a contract. The depository participant's and investors' duties and rights are outlined in this agreement.

Step 6: Your DP will begin processing your Demat account application after you sign the agreement. Once your application has been granted - you will be given a unique Beneficial Owner Identification Number (BO ID). With this BO ID, you can access your Demat account.

Conclusion

It is not hard to open a Demat account. Make sure you choose the right broker in the process of choosing a Demat account for yourself. Also, a Demat account can either be opened for free or with some minimal charges. It is one of the most important aspects you need to check before opening your account.