Here’s Why You Should Use Demat For Your Mutual Fund Investments

Mutual fund investments are among one of the most optimal routes to building long term wealth and fulfilling financial goals and an increasing number of people are considering this avenue to shore up their finances. With different types of mutual funds available, and the ease of SIP investment, mutual fund is becoming increasingly accessible to people. Additionally, robust mutual fund returns are also attracting investors to this avenue, and Jacob is one among these investors.

As an architect, Jacob had a dream – to own a business where he purchased land and built futuristic houses, which were then sold off to people who had a similar vision as him. He had already spent three years building houses and was keen on giving wings to his dreams five years down the line – which would offer him enough time to gain sufficient experience and build up the capital to finance his ambition. In this scenario, he began wondering about how to invest in mutual funds.

In recent years, the Indian stock market has witnessed a surge in participation from retail investors like Jacob, leading to a significant increase in inflows into equity mutual funds. This growth trend is highlighted by the fact that mutual fund assets soared to a record INR 53.40 lakh crore in FY24[1], marking a 35% year-on-year increase. The number of folios also reached an all-time high of 17.78 crore, reflecting a growing investor base and confidence in the equity markets. This rise in retail investors' participation not only strengthens the market's resilience but also underscores a burgeoning interest in wealth creation through mutual fund investment.

One of the factors contributing to this trend is the accessibility of systematic investment plans (SIPs), which allow investors to contribute small amounts regularly. SIPs have become increasingly popular due to their simplicity and disciplined approach to investing, even as SIP calculators help investors plan their investments seamlessly. Further, brokerage firms now offer direct SIP investment through demat accounts, adding another layer of convenience for investors.

What is a demat account?

A demat account is a digital repository for an investor's financial securities, holding them in electronic form for easy storage and management. It serves as an essential tool for those looking to engage in the Indian stock market, providing convenience and accessibility. Depository agencies such as CDSL and NSDL, authorised by the market regulator SEBI, offer demat accounts to investors.

Decoding mutual funds

Mutual funds are investment vehicles overseen by professional fund managers, pooling money from multiple investors with common investment objectives. These funds allocate investments across various assets like equities, bonds, and money market instruments. Profits generated from these investments are distributed among investors proportionally. Mutual fund investment enable retail investors like Jacob to participate in the growth of the market, without needing to invest actively, while also offering distinct advantages such as diversification and expert fund management at an affordable cost.

All you need to know about investment holdings

Investing in mutual funds through a demat account offers several advantages –

• Streamlined portfolio management: With a demat account, investors can manage all their investments, including mutual funds, in one place. This simplifies the investment process and facilitates portfolio tracking.
• Paperless transactions: Demat accounts eliminate the need for physical documents and paperwork. All transactions are conducted electronically, making the process more efficient and environmentally friendly.
• Instant transactions: Demat accounts enable quick and seamless transactions, allowing investors to buy, sell, and switch mutual fund units instantly during market hours.
• Secure storage: Mutual fund units held in a demat account are stored in electronic form, reducing the risk of loss or damage associated with physical share certificates.
• Consolidated view of investments: By holding mutual funds along with other securities in a demat account, investors can maintain a consolidated view of their entire investment portfolio, facilitating better assessment of performance and asset allocation.

Investing in mutual funds through a demat account offers numerous benefits, including streamlined portfolio management, paperless transactions, instant transactions, secure storage, and a consolidated view of investments. As retail investor participation continues to grow in the Indian stock market, demat accounts provide a convenient and efficient way to access mutual fund investments, contributing to the overall growth and development of the market. Understanding the varied benefits of undertaking mutual fund investments through demat, Jacob chose the same option to build the capital required to fuel his dreams.

With the continuous evolution of financial markets and the increasing adoption of digital technologies, demat accounts are likely to play an even more significant role in shaping the future of investing in India. As investors seek greater convenience, efficiency, and security in managing their investments, demat accounts stand out as a valuable tool that aligns with these needs. Therefore, embracing dematerialised investing through demat accounts can empower investors to navigate the complexities of the financial markets with confidence and ease.

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms  

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