Mutual funds have become a go-to investment choice for millions of Indians looking to grow wealth without picking stocks themselves. But while many invest using traditional folios, there’s another smart option that’s gaining traction: mutual fund demat accounts.
In this guide, we’ll explain everything you need to know about investing in mutual funds through a demat account — including how it works, its pros and cons, and how to choose the best demat account for mutual fund investments. Whether you’re a first-time investor or switching from regular folios, this blog will walk you through the entire process in simple, jargon-free language.
🔍 What Is a Mutual Fund Demat Account?
A mutual fund demat account is a digital account where your mutual fund units are held in dematerialized form — just like stocks. Instead of receiving units through a fund house or registrar like CAMS, the units are credited to your demat account with a Depository Participant (DP), such as NSDL or CDSL.
Think of it like a digital locker: all your mutual fund investments — across AMCs (Asset Management Companies) — are stored in one place, making tracking and managing easier.
🛒 How to Buy Mutual Funds in Demat Account
If you’re wondering how to buy mutual funds in demat account, here’s a step-by-step walkthrough:
✅ Step 1: Open a Demat and Trading Account
- Choose a SEBI-registered broker like Zerodha, Groww, ICICI Direct, or Upstox.
- Complete KYC for mutual fund investment using your PAN, Aadhaar, and bank details.
- Ensure the broker provides mutual fund services — not all stock brokers do.
✅ Step 2: Link Your Bank Account
- For smooth transactions, link your primary bank account to fund purchases or SIPs in your demat account.
✅ Step 3: Log in to Broker Platform
- Use the stock broker’s web or mobile app.
- Navigate to the mutual funds section — usually separate from stocks.
✅ Step 4: Browse and Choose a Fund
- Use filters like fund type (equity, debt, hybrid), AMC, or risk level.
- Check performance history, NAV, and fund manager details.
✅ Step 5: Invest in Lump Sum or SIP
- Choose SIP in demat account if you want to automate your monthly investments.
- For one-time purchases, choose the lump sum option.
✅ Step 6: Order Execution
- Once confirmed, your order will be processed and units credited to your demat account by the Depository (NSDL or CDSL).
🔍 Mutual Fund in Demat vs Folio – Key Differences
| Feature | Mutual Fund in Demat | Traditional Folio |
|---|---|---|
| Consolidation | All units in one demat account | Separate folios per AMC |
| Tracking | Easy via broker app | Requires multiple logins |
| Redemption | Done via broker | Done via AMC or RTA |
| Statements | Issued by NSDL/CDSL | Issued by CAMS/KFintech |
| Charges | DP and transaction charges may apply | Mostly free |
If simplicity and consolidation matter to you, a demat account for mutual fund investment may be the better choice.
💡 Advantages of Mutual Fund Through Demat Account
- Single Dashboard: Monitor stocks, ETFs, and mutual funds all in one place.
- Simplified Portfolio Management: Eliminate multiple folios and fragmented records.
- Ease of Redemption: Sell units anytime via a single platform.
- Consolidated NSDL Mutual Fund Statement: View all holdings at once.
- No Paperwork: Fully digital onboarding and transactions.
⚠️ Disadvantages and Charges to Consider
Before jumping in, be aware of some potential downsides:
- DP Charges: You may incur DP (Depository Participant) charges for mutual fund transactions.
- No Direct Plans: Most brokers only offer regular plans. If you want direct mutual fund in demat account, make sure your broker supports it.
- Limited Access to NFOs: New Fund Offers may not always be available via demat platforms.
🧩 Choosing the Best Demat Account for Mutual Fund
When selecting a platform, keep the following in mind:
📝 1. Direct Plan Access
Some brokers like Zerodha and Paytm Money offer direct mutual fund plans, which have lower expense ratios.
💰 2. Charges and Fees
Check for:
- Account opening fees
- Annual maintenance charges (AMC)
- Mutual fund demat account charges like redemption fees or transaction charges
📱 3. User Experience
A clean, intuitive interface can make investing a lot easier. Look for apps that offer performance tracking, portfolio analytics, and SIP management.
🔐 4. SEBI & Depository Compliance
Make sure your broker is registered with SEBI and is partnered with either NSDL or CDSL demat account services.
📉 Mutual Fund Redemption Process via Demat Account
Redemption is as easy as selling a stock:
- Log into your broker platform.
- Go to your mutual fund holdings.
- Choose the number of units to redeem.
- Submit your order.
- The amount will be credited to your bank in T+3 working days.
The mutual fund redemption process via demat is straightforward — no emails, calls, or paper forms needed.
🧾 NSDL Mutual Fund Statement & Tracking
Once you invest, your holdings are stored and tracked by NSDL or CDSL. You’ll receive:
- NSDL mutual fund statement (or CDSL if that’s your depository)
- Monthly updates of portfolio value
- Transaction history across all fund houses
This is especially useful for tax filing, capital gains calculations, and monitoring performance.
🧠 Real-Life Example: An Investor’s Journey
Let’s say Rohan, a salaried employee in Bengaluru, used to invest in mutual funds using CAMS. But managing folios from 5 different AMCs became overwhelming.
He switched to a mutual fund demat account with Zerodha. Now, all his investments — including SIPs — are visible under one dashboard. He receives a single NSDL statement every month, making taxation and performance tracking simpler.
Yes, he pays minor DP charges, but for Rohan, the convenience is totally worth it.
🤔 FAQs About Mutual Fund Demat Accounts
1. Is demat account mandatory for mutual fund investment?
No, it’s optional. You can invest using a folio directly with AMCs or registrars like CAMS. But using a demat account for mutual fund investment adds convenience and consolidation.
2. Can I buy SIP in demat account?
Absolutely. Most brokers let you set up automated SIP in demat account, just like regular folios.
3. What are mutual fund demat account charges?
Charges may include account maintenance fees and DP charges per transaction. Always review your broker’s fee sheet.
4. Which is better – mutual fund demat account or folio?
It depends. Demat is better for those who want a unified platform and already trade stocks. Traditional folios are often fee-free and offer better access to direct plans.
5. Can I open demat account for mutual fund only?
Yes. Some brokers let you open demat account for mutual fund investments without enabling stock trading.
6. Are direct mutual fund plans available in demat account?
Some brokers offer them (like Zerodha Coin, Paytm Money). But many offer only regular plans, which have higher expense ratios.
7. What happens if I stop investing via demat account?
Your units will remain safely stored. You can redeem them anytime or transfer them to another DP if needed.
✅ Conclusion: Should You Use a Mutual Fund Demat Account?
If you value convenience, streamlined investing, and the ability to manage all your holdings in one place, a mutual fund demat account is an excellent option — especially for tech-savvy investors and stock traders.
However, if you’re looking to maximize returns with direct plans, traditional folios may suit you better — unless your broker supports direct mutual fund in demat account.
Either way, the key is to stay consistent, stay informed, and choose a platform that aligns with your financial goals.
If you’re ready to begin, compare top stock broker mutual fund platforms, check for hidden fees, and open a demat account for mutual fund investing today.
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