Most people might know how to buy a mutual fund scheme through a mobile app or website of an Asset Management Company (AMC), but they may be ignorant about how to do it through a demat account. To be clear, one can buy or redeem mutual fund units with or without a demat account. However, the process via a demat account might be slightly different.

To invest through AMC platforms, like apps and websites, you need to feed details like PAN card, bank account number, registered mobile number, nominee, etc., for “know you customer” (KYC). Once done, you can opt for a systematic investment plan (SIP) or lump sum to invest.

However, the process of investing in mutual funds via a demat account is slightly different. You must first open a demat or trading account with a stockbroker, which executes trades in the stock exchange. The account can be opened for free by providing details like a PAN card number and proof of address, identity, savings bank account number, income, etc.

After creating the account, you must complete certain paperwork, offline or online, before applying for the mutual fund units in a dematerialized form. The process is not complicated, but you must ensure the details provided in the application form match the information disclosed to the stockbroker if done in the offline mode. In the online route, the demat account details are automatically fed to the AMCs by the distributors or stockbrokers.

Simple Paperwork

For offline, investors must fill out the common application form and provide demat account details. They must ensure the names mentioned in the application form match the account held with the depository participant (stockbroker). The latest client investor master/demat account statement should mandatorily accompany the application form. Apart from this, no additional paperwork is required for offline.

For online applications, the distributor shares the demat account details with the respective AMCs since they already have the client’s information taken at the time of account opening. Also, there is no extra cost involved in investing via demat, although demat charges may apply.

Monitoring MF Performance

After buying the mutual fund units through the demat mode, monitoring their performance is also effortless, as the AMCs and registered depositories provide information regarding the holdings from time to time. The AMCs regularly provide clients with fund account statements for demat and non-demat folios. Additionally, the National Securities Depositories Limited (NSDL) and the Central Depositories Services Limited (CDSL), the registered depositories, share with clients the consolidated account statements that provide details of mutual funds held in demat accounts. The fund houses also communicate with the mutual fund unitholders regarding fund performance, strategy changes, and other information, irrespective of the mode of holdings.

Finally, buying mutual fund units in a demat mode is easier than it may appear. So choose the method that is more convenient for you. Regardless of the mode of holdings, these instruments have become people’s all-weather allies in wealth-building. Data from the Association of Mutual Funds in India (AMFI) shows that SIP contributions in September 2023 reached an all-time high of Rs 16,042.06 crore, underscoring people’s strong preference for mutual funds.

The author is the head of Mutual Funds and Fixed Income products – Retail, ICICI Direct. ICICI Securities Ltd is an AMFI-registered mutual fund distributor.

Disclosure: Investment in mutual funds is subject to market risk. Please read all scheme related documents carefully before investing.

Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing.