Demat Account Advantages: With a demat account, investors can manage all their investments, including mutual funds, in one place. This streamlines the investment process and makes it easier to track your portfolio.
In recent years, there has been a steady increase in inflows into equity mutual funds, reflecting the growing participation of investors in the flourishing Indian stock market. As a result, mutual fund assets surged by ₹14 lakh crore, or 35% year-on-year, to a record ₹53.40 lakh crore in FY24.
According to the Association of Mutual Funds in India (AMFI) annual report, this percentage gain marked the highest growth since fiscal 2021, when the industry expanded by 41%.
Moreover, the number of folios reached a record high of 17.78 crore, contributing to an investor base of approximately 4.46 crore. The surge in retail investors' participation in Indian stocks underscores a burgeoning interest and confidence in the equity markets.
With a stronger retail investor base, the market is poised to withstand FPI (foreign portfolio investor) outflows, offering stability and resilience in volatile market conditions.
The strong inflows into the mutual funds were attributed to the adoption of systematic investment plans (SIPs). In fiscal 2024, net inflows through SIPs amounted to ₹2 lakh crore, indicating growing investor confidence and a disciplined approach to investing.
The SIP route has become increasingly accessible to investors, with brokerage firms now offering direct SIP investments through demat accounts.
In this article, we will explore some key advantages of utilising a demat account for mutual fund investments.
A demat account serves as a digital repository for an investor's financial securities, holding them in electronic form for ease of storage and management. This account streamlines the handling of financial assets, offering convenience and accessibility to investors.
For those looking to engage in the Indian stock market, possessing a demat account is indispensable. These accounts are provided by depository agencies, primarily CDSL and NSDL, both authorised by the market regulator, the Securities and Exchange Board of India (SEBI).
Mutual funds are investment vehicles overseen by professional fund managers, operating as trusts that pool money from multiple investors with common investment objectives. These funds allocate investments across various assets like equities, bonds, money market instruments, and other securities.
Profits or returns generated from this collective investment are distributed proportionally among investors after deducting relevant expenses and charges, determined by the scheme's "net asset value" (NAV). Essentially, mutual funds are formed through the contributions of numerous investors.
Mutual funds cater to investors who may lack significant capital for investment or prefer to delegate market research yet aim to grow their wealth. Professional fund managers invest the pooled funds according to the scheme's objectives, while the fund house charges a reasonable fee, regulated within specific limits by the Securities and Exchange Board of India (SEBI).
Investing in mutual funds through a demat account eliminates the need for physical documents and paperwork as all transactions are conducted electronically, which eliminates the paperwork and makes the process more environmentally friendly.
Moreover, demat accounts enable quick and seamless transactions, allowing investors to buy, sell, and switch mutual fund units instantly during market hours. Demat accounts provide a secure platform for storing mutual fund units in electronic form, which eliminates the risk of loss or damage associated with physical share certificates.
By holding mutual funds along with other securities like stocks and bonds in a demat account, investors can maintain a consolidated view of their entire investment portfolio, making it easier to assess overall performance and asset allocation.
Investing in mutual funds presents a diverse range of opportunities across various asset classes, including equity shares, corporate bonds, government securities, and money market instruments. This diversity makes mutual funds an attractive option for retail investors seeking to capitalise on the upward trends in capital markets.
Yes, mutual fund units held in physical form can be converted into dematerialised form. This involves submitting a request to the respective mutual fund registrar along with the required documentation to convert the physical units into electronic form.
No, having a demat account is not mandatory for investing in mutual funds.
Yes, multiple schemes of mutual funds can be housed and managed within a single demat account. This offers investors the convenience of consolidating their mutual fund investments in one location, facilitating easier tracking and management of their portfolios.
Yes, some mutual fund houses extend the option to initiate SIPs directly through a demat account. Investors can establish SIPs for specific mutual fund schemes by furnishing the necessary instructions through their demat account provider.
This provides added convenience for investors who prefer managing their SIPs alongside their other investments held in the demat account.
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