SHARETIPSINFO >> Articles Directory >>Is demat account is necessary for investing in mutual funds?
If you are considering mutual fund investments and do not know much about mutual funds here we will give you a comprehensive overview about mutual fund investment. There are many investors who are often in confusion whether they need a demat account to invest in the mutual funds. The answer is “No”. You do not need a demat account to invest in mutual funds or sell the units that you have purchased. But of course if you have a demat account you can surely make use of it for investing in mutual funds. But then you might be wondering how to invest in the mutual funds? That is why we are providing you all the information you need to know regarding investing in mutual funds.
How mutual funds operate – Mutual funds are managed by financial institutions, which collect money from the market from retail investors by selling units of the funds through open advertisements at a specific price. Then they invest the collected money in different types of securities including stocks, bonds and on stock index. The profit and loss of the mutual fund is dependent on the performance of the securities on which the fund invests. Every day after the closing of the financial market the present valuation of the units of the mutual fund is presented through the Net Asset Value or NAV of the fund. NAV shows the current price of the unit that you can get from the institution if you sell of the units.
For investing in the mutual fund you can fill up the application form published by the fund managing company providing them the details. While selling of the units you can simply fill up the form and the money will be deposited either to your bank account directly or the payment will be made to you through cheque. This is the general procedure for investing in the mutual funds. There is absolutely no need of any demat account or broker to invest in the mutual funds. But surely if you are having a demat account and an online trading account you can use the facilities to invest in the mutual funds. It will make the process lot easier for you as you won’t need to fill up the application and do all the processing. With just a buying request sent over the online trading account you can invest in the mutual fund. The selling of the mutual fund units through the online trading account is similarly simple.
Different types of mutual funds – There are so many different types of mutual funds in the market. The most common and the most convenient option for mutual fund investment is the Open Ended Funds. This funds lets you sell the units whenever you want. It is also possible to enter the fund whenever you want but in that case you have to pay the premium that means you have to buy the units at the current NAV of the fund. There are different mutual funds that are categorized on the basis of financial instruments in which they invest. For example there are mutual funds that invest in stocks but there are different types of such funds. Some funds invest in growth stocks, some invest in specific sectors, and some funds invest in large cap stocks, and so on. There is a recent development in the market of mutual funds that is the Exchange traded funds. These funds basically invest in the index of the stocks exchanges – for example NIFTY and Sensex. The profit and loss of these funds is based on the performance of these indexes.
Like any mode of investment, investing in the mutual funds does have its pros and cons. Mutual funds are basically more secured than stocks market investment. Though the performance of these funds is based on the rise and fall of the stocks, these funds are managed in a manner that the profit and loss is controlled professionally to give you a moderate return. But surely it can never get you the big returns that you can expect to get from the stock market investment. Moreover, you need not have thorough understanding of the stocks market to invest in the mutual funds that is required if you want to invest in the stocks.
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