Mutual Fund: Do you need a demat account to buy a mutual fund in India?

Mutual funds (MFs) are one of the top investment options for wealth creation. If one is looking for long-term schemes to put their money in, mutual funds are a good choice. The funds put an investor’s money into a portfolio of securities, bonds and other market instruments. There are some basic things you need to know to start investing in mutual funds. One confusion that often arises is if mutual funds need a demat account like trading in equities does. Here’s everything you need to know about mutual funds, how you can invest in them and if a demat account is required.

What are mutual funds?

Mutual funds give individual investors access to professionally managed portfolios of stocks, bonds and other securities. The value of the mutual fund depends on the performance of the market instruments in its portfolio. The range of investment is diversified so that any losses can be offset by gains in other securities.

Do you need a demat account to invest in mutual funds?

Asset management companies (AMC) have not made it mandatory to have a demat account for investing in MFs. A demat account is necessary only for investment in the stock market. For putting money in mutual funds, an investor needs to go through a Know Your Customer (KYC) process

How to invest in mutual funds?

There are multiple ways to invest in MFs:

Invest through AMC: An investor can go through an asset management company. They need to visit the AMC’s web portal, select the fund they want to invest in and then initiate the KYC process. The subscriber has to submit a valid proof of identity, PAN card, and a cheque. The company will give a folio number and PIN to the investor to check their MF.

Invest through mutual fund distributors: A person can go in for mutual fund distributors as well. These provide a similar experience like AMCs.

Benefits of investing in mutual funds

Diversification: Mutual funds offer a diversified investment portfolio. This means a person’s money is less likely to incur losses since there are fallback options to offset any potentially risky securities.

Professional management: The MF gets the benefit of being handled by professionals so any investor does not need to monitor their portfolio 24x7.

Transparency: It is easy to see the status of the portfolio at any time. Since it is subject to industry regulations, mutual funds are highly regulated and accountable.