While an investor doesn't need to have a dematerialization (DEMAT) account to purchase or redeem mutual fund shares, there are many advantages to having one. A DEMAT account enables an investor to buy mutual fund shares through the electronic transfer of funds without the assistance of a broker.

Additionally, with a DEMAT account, an investor does not need to hold the physical fund certificates when redeeming shares.

Buying Mutual Funds Directly From the Company

DEMAT accounts typically make the process of purchasing mutual fund shares quick and easy. However, investors can purchase mutual fund shares by contacting the mutual fund company directly. This enables investors to bypass the use of a DEMAT account or a broker.

Also, by directly contacting a fund company, an investor can take additional control, responsibility, and accountability over their mutual fund trading.

Mutual funds make forms available that investors can complete and send to the company to request purchases of shares. When you redeem your shares, you can have money from the sale sent directly to a bank account. Or, if you prefer, you can have a check mailed to an address you specify.

Buying Mutual Funds Through a DEMAT Account

Before the advent of the Internet and the wide usage of personal computers, investors would receive the physical certificates for the stocks and other investments they purchased. With the move toward the mass computerization of data, however, investors can now use a DEMAT account to replace the need for physical certificates. Investors can purchase, hold, and sell their mutual funds online all through electronic bookkeeping.

While a broker may approach an investor with the proposition to manage a mutual fund account, the DEMAT account gives the investor another option. The online gateway can make the review, selection, and comparison of funds easy for investors who prefer to manage their own accounts.

Other Ways to Buy Mutual Funds

Many banks and online providers offer investors various ways to buy mutual fund shares. Discount brokers execute buy and sell orders for investors at a reduced commission rate. Typically, however, they do not offer the investor advice, research, or analysis. It's up to each investor to decide whether a third party should be involved in their purchase of mutual fund shares.

The Benefits of a DEMAT Account

There are many benefits for investors who use a DEMAT account when buying mutual funds. One of the main benefits is that it's an easier and safer way of holding securities compared to the previous method relying on physical certificates. Paper certificates can be lost, stolen, or damaged. Criminals can create fake certificates in an attempt to defraud investors.

By using electronic bookkeeping, investors enjoy automatic and rapid updating of their accounts. Mutual funds can increase the speed at which they process trades, eliminate unnecessary paperwork, and help reduce mistakes caused by human error.

Key Takeaways

  • Mutual fund companies do not require investors to use a dematerialization (DEMAT) account to buy mutual funds.
  • A DEMAT account allows investors to electronically purchase and redeem securities, mutual funds, and other investments. 
  • Instead of using a DEMAT account, investors can choose to buy or redeem mutual funds directly from the mutual fund company.
  • DEMAT accounts offer investors several advantages, including increased security of financial transactions, increased speed in processing trades, and the elimination of unnecessary paperwork.