Stock market trading and investing are for active traders and investors. It is for those who wish to get involved in how their money is invested. Mutual Fund investing is for the passive investor. Someone who wishes to get market-linked returns without really diving into the daily paperwork or accounting. While investing through open-ended mutual funds does not need a demat account, you may want to understand the process of dematerialization. A small section of closed-ended funds requires you to have a demat account.
Around twenty-five years ago, the Securities and Exchange Board of India introduced dematerialization (demat). It converted paper receipts, claiming ownership of shares, into an electronic format. With the help of a demat account, when you trade, all the details of the shares and other securities you have invested in are stored online. It is now mandatory to have a demat account to buy and sell shares at the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). The primary purpose of this account was to remove the hassles of handling the paperwork involved in trading.
You need three accounts to trade online, a bank account, a demat account, and a trading account. A trading account is required to buy and sell shares in the stock exchanges. While the demat account holds the shares and securities in an electronic format, this trading account enables you to buy and sell on any stock exchange. It is complementary to your demat account, and you usually link both accounts together for seamless trading.
A way to reduce risk in investing is to have a mix of investments. A mutual fund is a vehicle that allows you access to them. When you invest through a mutual fund, you invest in a mixture of stocks, bonds, and other assets. It is managed by a professional for a fee. You do not have to worry about choosing the investments. The manager of the fund will invest the money ineligible ones.
Ways to invest in a mutual fund
Unlike when you invest in shares, it is not necessary to hold a demat account while investing in mutual funds. There are a few ways to buy a mutual fund, either offline or online. Let us look at a few of those methods.
Through an Asset management company (AMC)
A company that invests funds that they receive from various investors is an asset management company. They offer investors the option to invest in mutual funds. To invest in mutual funds through them, you can visit the office of the AMC and fill out an application form along with details required by them, including the payment. You can also invest with them online by visiting their website and submitting the application and all the required information online.
Through a distributor
Many banks offer an option for you to invest in mutual funds schemes on their website. They act as mutual fund distributors, and you can invest in mutual funds through them.
ICICI direct offers investors a way to choose and invest in mutual funds from about 38 leading asset management companies. Their money app provides an easy, hassle-free way of choosing research-backed mutual funds across various fund categories.
Through a broker on the stock exchange
Last year, India’s capital market regulator, the Securities Exchange Board of India, allowed investors to invest in mutual funds through a stock exchange. You need a demat account to invest in mutual funds with your stockbroker. Just like shares, you can also hold records of mutual funds in your demat account.
While a demat account is needed for mutual funds only when investing through a stock exchange, it has one benefit. It provides safety against potential frauds that can occur. There is also an easy and hassle-free way of opening a demat account compared to filling various application forms.
ICICI Securities Ltd.( I-Sec). The registered office of I-Sec is at ICICI Securities Ltd. – ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai – 400020, India, Tel No: 022 – 2288 2460, 022 – 2288 2470. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks; read all scheme-related documents carefully. Please note, Mutual Fund related services are not Exchange-traded products, and I-Sec is just acting as a distributor to solicit these products. All disputes concerning the distribution activity would not have access to the Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered 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.
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