With technology shifting the way we live our lives; the stock market is not left untouched. There has been a radical change since the times when the open trading exchange was a thing wherein brokers would literally shout prices for stocks. Hereon, the investors would have to hold their shares physically, which was quite cumbersome and tiring. However, this changed with the entry of Demat accounts. A Demat account, short for a Dematerialized account is a single place that holds all the shares of an investor in an electronic form. A Demat account holds all certificates of different types of investment such as mutual funds, stocks, exchange-traded funds, bonds, shares, and government securities. Over the years, a Demat account has simplified trading for investors.
Investors new to the investing world often wonder if it is really essential to have a Demat account in order to invest in mutual funds. A Demat account is only needed to invest in stocks and not mutual fund investments. Why you may wonder. This is because there are no physical certificates involved in mutual fund investment. As an alternative, all records are saved electronically. Although Demat accounts provide several benefits to investors such as simplified nomination requirements, paperless transactions, cost-effective tools, and easy change in information to name a few, it is not required for mutual fund investments. Here’s why:
Trading account not needed
When you open a Demat account, you need to open a trading account as well which is pointless when you can easily invest in mutual funds without going through all these formalities.
Consolidated view
Several investors justify opening a Demat account as it provides a joined view of their investments. However, NSDL (National Securities Depository Limited) overpowers this need as they offer investors a unified view of their investments that includes mutual fund investments as well.
No physical shares required
As mentioned above, you do not need physical shares to invest in mutual funds. The AMC (asset management company) assigns a folio number to investors that stores all fund-related information. This acts like a Demat account.
Limitationsonnominee
As an investor, you can just add one nominee to a Demat account that might make the process of financial planning quite complicated. If you wish to assign your assets to several people in varying percentages, it can be quite a task with a Demat account.
Additional costs
Sustaining a Demat account needs one to pay the yearly charges along with the transaction cost each time you make or withdraw your mutual fund investments. What’s more, the trading account might hold extra charges as well.
Choosing an ideal platform for your investments must entirely depend on your financial needs and the cost-effectiveness of the chosen platform. Understand the importance of investing and look for several investment options and platforms offered to you. Happy investing!
