A demat account is an online repository that holds all the information of your share certificates. Just like an MS Word document is a digital representation of a hard copy paper document, a demat account is a digital version of share certificates solely for the purpose of facilitating the online trading of shares. It is very easy to open a demat account online these days.
A mutual fund is a collection of stocks and bonds that are purchased on your behalf by professional fund managers. These are further divided into units that can be bought or sold in the securities market. Mutual fund investments are proving to be very beneficial these days as they offer excellent returns in addition to several tax benefits.
Opening a demat account for mutual funds is not strictly necessary, but has a lot of advantages that cannot be ignored. It is highly recommended for people who are looking into mutual funds strictly as investments for future returns.
Some of the advantages of opening a demat account for mutual funds are:
- Ease of tracking changes resulting from corporate actions: A demat account will ensure that you do not have to hunt through all your individual mutual funds or go through the business of understanding where exactly your mutual funds are residing. This is a reality in today’s marketplace where mergers, acquisitions and buyouts happen frequently, thereby changing the nature (not the price) of your mutual funds with regards to name and which company they now belong to, etc. This is taken care of via the account itself and requires no effort or worrying from your end.
- Easy to change your preferences for investments in a single go: Demat accounts make it child’s play when it comes to changing the name of your beneficiary, your given address or any nominations you please. This simple activity can be nightmarish to perform in the absence of a demat account if you have a very diverse investment portfolio, something which is encouraged as good investment practice anyway.
- Free transfer: It is free, fast and efficient to transfer units from your demat account to any nominees or legal heirs (barring tax saving funds).
- Consolidated view of investments: All your investments are placed before you in a single sheet, making it very easy to track your progress and to buy and sell units according to the market and your preferences.
- Ease of purchasing and selling investments: Since everything is consolidated (and very secure) within your demat account, purchasing and selling units becomes easier and requires minimal effort.
- More efficient than paper: In this digital age, it is inadvisable to have any investments saved on paper. Relying on the postal network to bring you updates about your stocks is not only archaic as a system, but it also wastes precious time in delivering the news to you.
Online demat accounts operated by Securities and Exchange Board of India (SEBI) approved vendors such as Kotak Securities are ideal repositories for all your investment data and related information. For a nominal fee, all the hassles of trying to manage your investments get passed on to dedicated professionals and secure banking systems.