Is a Demat Account Required for Mutual Fund Investments?

If you've been scrolling through finance content or chatting with that one "investor" friend, you've probably heard the word Demat thrown around like it's a secret entry pass to the money club. 

But guess what? For mutual funds, it's not a must-have. Yup, that's right, you can totally invest in mutual funds without a Demat account and still be 100% legit.

Think of it like ordering food. Some use food apps (Demat), others just call the restaurant directly (Folio method). Either way, you get your food. Similarly, you can invest in mutual funds directly.

Of course, if you're juggling stocks, ETFs, and mutual funds, a Demat might make life tidier. But if it's just mutual funds, you're good without it. Let's understand how.

Table of Contents

• How to Invest in Mutual Funds Without a Demat Account
• How Does Investing Without a Demat Account Work?
• Investing in Mutual Funds With a Demat Account
• Investing With Demat vs Without Demat 
• Is Demat Account Required for SIP? 
• Key Documents Required for Mutual Fund Investing

How to Invest in Mutual Funds Without a Demat Account

Wondering how to invest in mutual funds without a Demat account? 

Good news: A Demat account for mutual fund investments is totally optional unless you're dealing with ETFs or stock exchange-traded funds. Instead, most investors use:

• Statement of Account (SoA): When you invest without a Demat account, your mutual fund units are held in something called a Statement of Account (SoA). It's a digital document that shows all your mutual fund activity. Every time you invest, redeem, or set up a SIP, it gets recorded here. You will receive this document by email. It's your proof of investment, no Demat needed.
• Folio Number: This is your personal account number with a specific fund house or Asset Management Company (AMC). It's how the AMC keeps track of all your mutual fund transactions, contact info, and even nominee details. You'll get a unique folio number with each new AMC you invest in.

How Does Investing Without a Demat Account Work?

You just skip the Demat part and go straight to the source. Mutual fund platforms let you invest, track, and manage everything with your folio number. No middlemen, no extra accounts, just a few clicks and you're in, thanks to:

• AMC websites: You can invest directly via official AMC websites like SBI Mutual Fund, ICICI Prudential, HDFC Mutual Fund, and others. Complete your KYC, pick a scheme, make the payment, and you're in. All without a Demat account.
• Registrar & Transfer Agents (RTAs): Platforms like CAMS and KFintech act as record-keepers for most AMCs. You can invest, manage, and redeem your mutual funds directly through their portals. 
• MF Central: A unified digital platform created by CAMS and KFintech, MF Central is SEBI-approved and designed for non-Demat investors. It gives you a consolidated view of all your folio-based mutual fund investments; no need for a Demat account for SIP or lump-sum investments.
• Fintech platforms: Apps like Groww, Kuvera, and others also support mutual funds without a Demat account. 

You can even track your investments without a Demat account. You'll receive regular email statements from AMCs or RTAs. And if you're managing multiple folios, MF Central consolidates everything into one view. So, you can invest in mutual fund without Demat account and still track everything easily. 
Some fintech platforms also support mutual funds without a Demat account. However, this trend is changing. More and more platforms are pushing investors towards Demat mode. 
In fact, Groww is now following in the footsteps of Zerodha, Upstox, and Paytm Money by making Demat the default mode for new mutual fund purchases, moving away from the older Statement of Account (SoA) format.

Investing in Mutual Funds With a Demat Account

We've talked about investing in mutual funds without a Demat account. But if you already have one, why not use it? 

If your Demat account is already active for stocks or ETFs, it just makes sense to use it for mutual funds too. It's easier, cleaner, and convenient.

How Does Investing With a Demat Account Work?

Simple. You use your broker's platform (like Zerodha, Groww, HDFC Securities, ICICI Direct, and others). You log in, pick your mutual fund, and invest. No extra setup. Your mutual fund units are credited directly to your Demat account, just like your stocks or bonds.

There are no folio numbers to remember. No separate statements from different AMCs. Everything sits neatly inside your Demat account, in digital form. You'll get one consolidated view of your entire portfolio, mutual funds, shares, ETFs, and bonds, all in one place. That's a win.

However, a Demat account is not mandatory for mutual funds. You can absolutely invest without a Demat account (we covered that earlier). But if you're investing in Exchange Traded Funds (ETFs), then yes, Demat account is required for mutual fund investments of that kind. ETFs are traded on stock exchanges, and they can't exist outside your Demat account.

So:

• For SIPs, regular mutual funds = Demat optional
• For ETFs and listed NFOs = Demat mandatory

That's why people still go for the Demat route. If you're already trading or tracking investments through your Demat account, adding mutual funds into the mix is a no-brainer. One dashboard. One login. One statement from your depository (NSDL or CDSL). That's it.

So, if you already have a Demat, use it. Even if you don't, you're not missing out. However, the choice between using and not using a Demat for mutual funds may soon disappear.

A case in point is Groww. Until recently, mutual funds purchased on Groww were stored in the SoA format, which meant that investors could access their investments through multiple platforms. However, under Groww's updated policy, all fresh mutual fund purchases will now be held in the Demat form by default unless the investor explicitly chooses to opt out. This trend may make it difficult for investors to invest in mutual funds without a Demat account.

Investing With Demat vs Without Demat 

If you're still wondering, "Do I need a Demat account for mutual funds?", this is the section that'll make it click.

Here's the thing: both options work. But which one works for you? That depends on how you like to invest, how much control (or convenience) you want, and how much you're willing to pay (or avoid paying).

Let's break it down, feature by feature:

Feature	Without Demat (Folio Method)	With Demat Account
What You Need	PAN, bank account, KYC	Same + active Demat account
Where Funds Are Held	With the AMC/RTA as a Statement of Account (SoA)	In electronic (Demat) form with your broker via NSDL/CDSL
Tracking Investments	Use AMC portals, MF Central, or RTAs like CAMS/KFintech	Everything in your Demat account
Charges	Usually free (no AMC fees)	Annual charges (₹0–₹750/year, depending on broker)
Nomination Setup	One nomination per folio	One nomination covers all investments
Switching Platforms	Easy, as your folios stay with the AMC	Switching brokers = transferring your Demat account
Best For	Mutual fund-only investors and cost-conscious folks.	Active traders, stock market regulars, all-in-one portfolio lovers

Now, here's something most people overlook. With the SoA mode, you get access to SWP (Systematic Withdrawal Plan) and STP (Systematic Transfer Plan), both of which aren't available in Demat mode.

• SWP allows you to withdraw a fixed amount from your fund at regular intervals. This is perfect for creating a steady cash flow during retirement or semi-retirement.
• STP lets you automate transfers from one fund to another, for example, from a debt fund to an equity fund. This way, you can enter the market gradually and reduce timing risks.

If you are in favour of goal-based investing, managing liquidity, and navigating stock market volatility, then these features are great for you. Plus, the SoA route tends to be simpler and more cost-effective too.  

So, if you're all about mutual funds, love SIPs, and want low or zero fees, the folio route is your bestie.

But if you already have a Demat account and want one place to track everything from stocks to mutual funds to ETFs, then go for it. Just be mindful of the extra charges.

Is Demat Account Required for SIP?

Here's a question that refuses to go away: Is Demat account required for SIP? Or put another way: do we need Demat account for SIP?

Answer: Absolutely not. 

SIP, short for Systematic Investment Plan, is just a way to invest a fixed amount in a mutual fund at regular intervals. Whether you invest ₹500 or ₹5,000 every month, SIP is simply a payment method. And for that, you do not need a Demat account.

You can set up and run SIPs perfectly fine through the folio method. In fact, lakhs of investors in India have been doing it this way for years, and no one's ever asked them for a Demat account.

How SIPs Work Without a Demat Account

If there's no Demat account, how does your money magically move into mutual funds every month? It's all thanks to the e-NACH mandate.

Here's what happens:

• Mandate setup: You give one-time permission to your bank through an e-mandate (called e-NACH or OTM). It's like saying, "Yes, dear mutual fund, you can auto-debit ₹X from my bank account on the 5th of every month".
• Link to Folio: This auto-debit gets linked directly to your mutual fund folio (your account with the fund house). Every time the SIP hits, money flows from your bank → mutual fund, → you get units.
• No manual work: Once set up, it runs on autopilot. No reminders, no actions, no Demat account involved.
• Done online or offline: You can set this up fully online using your bank and AMC's website, or you can go old school and fill out a form. OTP-based authentication is now standard, so it's even easier.

The whole system is powered by the NPCI's NACH platform, which is the same system that runs UPI, so it's safe. And most mandates allow you to set a higher ceiling, so if you want to step up your SIP amount later, you don't have to do the paperwork all over again.

Key Documents Required for Mutual Fund Investing

Paperwork isn't the most exciting part of investing. But it's mostly digital now, and once you're through it, you're pretty much set for good. Whether you're going the Demat way or sticking with the classic folio route, the basic checklist is more or less the same.

Here's what you'll need to get started:

Document	Needed for Folio?	Needed for Demat?	What's It For?
PAN Card	Yes	Yes	Your all-access pass to financial markets. Mandatory for almost all investments.
Proof of Address	Yes	Yes	Aadhaar, passport, utility bills (within 3 months), etc. Needed for KYC.
Proof of Identity	Yes	Yes	Aadhaar, passport, PAN, voter ID, etc. Often overlaps with address proof.
Bank Account Proof	Yes	Yes	A cancelled cheque, bank statement, or passbook copy to link your bank for transactions.
Photograph	Yes	Yes	For physical KYC. Online? Just upload a selfie or live pic.
Signature	Yes	Yes	On forms or digitally. Yes, even in 2025, your signature still matters.
Demat Account Details	No	Yes	Only needed if you're going the Demat route—DP ID, BO ID, all that jazz.

No matter which route you pick, PAN, ID, Address, and Bank proof are non-negotiables. If you go Demat, you'll just need to add those Demat details.

Also, if you're already CKYC compliant (Central KYC), you might skip a lot of repeat KYC pain. Do it once, and most financial institutions will recognise you. 

Conclusion

So, there you have it. The big "Demat or no Demat" debate, finally untangled. For most mutual fund investors, especially those sticking to SIPs or direct plans, a Demat account isn't a must-have. It's more like a preference. Something that might make your life easier if you're also dabbling in stocks, ETFs, or other market instruments. Otherwise? You're good with just your folio number and a solid KYC.

But if you do decide to go the Demat route, make sure the account you choose actually works for you, not just the one your friend uses or what your bank suggested ten years ago. That's where Finology Select comes in. It lets you compare 20+ of India's top brokers side-by-side, charges, features, ease of use, and more. So you can pick the platform that suits your style, not someone else's.

Want to know what AMC really means and why it’s charged on Demat accounts? This guide to AMC for Demat account will help you understand its impact on your investment costs and how to manage them smartly.

Frequently Asked Questions (FAQ)

So, do I need a Demat account for mutual funds?

No, you do not. "Do I need a Demat account for mutual funds?" is a very common question, but the answer is no. A Demat account is not required for mutual fund investments if you choose the traditional route using a folio or Statement of Account (SoA). 

Can I invest in mutual funds without a Demat account?

Yes, absolutely. You can invest via AMC websites, RTA portals like CAMS or KFintech, or use platforms like MF Central. This is a popular method for people focused on mutual funds without Demat account.

Is a Demat account mandatory for SIP?

No. If you're asking, "Is Demat account required for SIP?", "Is Demat account mandatory for SIP?", or "Do we need Demat account for SIP?", the answer is no in all cases. You can set up SIPs using a simple bank mandate like e-NACH, without needing a Demat account.

What is the main disadvantage of investing in a mutual fund without a Demat account?

Earlier, investing in mutual funds without Demat account was tricky because tracking multiple folios was hard. But now, platforms like MF Central and consolidated statements from CAMS or KFintech make it easy. So even if you go for a mutual fund without Demat account, you can still manage everything efficiently.

What is the main advantage of using a Demat account for mutual fund investments?

Using a Demat account for mutual fund investing can help consolidate your portfolio. If you also invest in stocks, ETFs, or bonds, having everything in one place helps. In that sense, Demat account is required for mutual fund tracking only if you prefer everything under one umbrella.

Do I need a Demat account to buy mutual funds on a stock exchange?

Yes. If you are buying or selling mutual fund units on stock exchanges, such as ETFs or closed-ended funds after listing, a Demat account is required.

Is a Demat account needed for mutual funds if I only want to do SIPs?

No, it is not needed. You can do SIPs through the Folio method using your bank account, without requiring a Demat account.

For mutual funds, is a Demat account required, or is it just an option?

It is just an option. For most mutual funds, a Demat account is not required. It is only necessary for exchange-traded products like ETFs.

Can I invest in mutual funds without a Demat account and still track everything easily?

Yes. You can track your investments easily using platforms like MF Central or consolidated RTA statements, even without a Demat account.

Is a Demat account required for mutual fund SIPs, or can I use my bank account directly?

A Demat account is not required. You can set up SIPs using your bank account directly via a bank mandate such as e-NACH.

Can I invest in Mutual Funds without a Demat account on Groww?

Not anymore. Since 5 June 2025, Groww has shifted to processing all new mutual fund investments in Demat mode. If you prefer the traditional SoA method, you'll now need to opt out each time by verifying through an OTP. Your existing SoA investments and ongoing SIPs remain unchanged, but any fresh purchases will automatically be held in Demat form unless you make the switch.