How it works
Two depositories in India, NSDL and CDSL, hold securities electronically. You open an account through a depository participant (a broker, bank or other registered entity), which links to your PAN, KYC and bank. When you buy a share, it appears in your demat account; when you sell, it leaves.
Demat vs trading vs bank vs folio
| Account | What it does |
|---|---|
| Bank account | Holds your money |
| Trading account | Lets you place buy/sell orders on an exchange |
| Demat account | Holds the securities you bought |
| Mutual fund [folio](/learn/glossary/folio) | AMC's record of your units, held in a statement of account |
Do you need one for mutual funds?
- For a regular or direct mutual fund SIP: no. Units are credited to a folio. This is how most SIP investors invest.
- For ETFs: yes. ETFs trade on exchanges and sit in demat.
- For stocks, bonds, IPOs, sovereign gold bonds and some other products: yes.
- If you want everything in one view or plan to hold units electronically: some investors hold mutual fund units in demat by buying through exchange platforms.
Costs and cautions
Brokers may charge account opening, annual maintenance and transaction fees. Ask for a low-cost basic account if you only plan a few holdings. Add a nominee at account opening so heirs can claim without delay.
Questions people ask
What is a demat account in simple words?
A digital locker for securities.
Is a demat account compulsory for mutual funds?
No, not for ordinary mutual fund SIPs.
Is demat the same as trading account?
No: the trading account places orders, the demat holds the securities.
Who regulates demat accounts?
SEBI, through the depositories NSDL and CDSL.
Keep going
Run the numbers
SIP calculator
A Systematic Investment Plan (SIP) invests a fixed amount every month into a mutual fund.
Related terms
How we can help
Sources
- SEBI (Depositories and Participants) Regulations
- NSDL and CDSL investor guides.
Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. This page is general education, not personal advice. Back to the full glossary