Retail investors now account for more than half of Indian market ownership as of March 2025, high SIP inflows from domestic investors overtook foreign capital for the first time.
Yet, many new investors remain unsure about the basics and hesitate at the very first step: do you need a demat account for SIP? This question matters even more today as investing platforms expand and choices multiply. The details behind this common doubt, and what it means for investors, are explained in this blog.
Do You Need a Demat Account for SIP?
No, a Demat account is not required for SIP. Systematic Investment Plan can be started directly through AMC, banks, advisors without the need of a demat. A Demat account is only necessary if you wish to invest in stocks or hold multiple securities together in electronic form, but it is not a prerequisite for SIPs.
Understanding SIP and Demat: What’s the Link?
A Systematic Investment Plan (SIP) is an investment method where a fixed sum is invested in mutual funds at regular intervals. This process does not require a demat account, as units can be recorded under a folio number maintained by the AMC.
A demat account, facilitates dematerialisation, the process of converting physical security certificates into electronic form. This electronic account is opened through a Depository Participant (DP), such as a bank or a stockbroker, and is designed to store securities like shares, bonds, and ETFs. The connection arises only when SIPs are routed through brokers or stock exchanges, where mutual fund units may be credited to a demat account for consolidated tracking alongside other assets.
Investment Channels: With vs Without Demat
SIPs can be invested through both demat and non-demat routes. Here’s how they differ:
| Aspect of investing | Through demat account | Without demat account |
| Viewing holdings | Brings stocks, ETFs, and SIPs together in a single account | Mutual funds tracked separately across AMCs or apps |
| Charges involved | Annual account maintenance fee is payable | No extra cost beyond fund expense ratio |
| ETF participation | Needed if SIPs are set up in ETFs | Not required for regular mutual funds |
| Access to fund types | May restrict access to direct mutual fund plans | Direct plans available freely |
| Ease of starting | Requires linking demat with broker | Simple sign-up via AMC or distributor |
| Tracking options | One consolidated dashboard across assets | Separate statements from each fund house or platform |
Pros of Using Demat for SIPs
Using a demat account for SIP investments offers several practical advantages:
- Complete portfolio visibility: Track all your investments, stocks, ETFs, and mutual funds within a single account.
- Simplified fund operations: Buying, switching, or redeeming units can be handled on one platform, reducing paperwork and effort.
- Digital safekeeping: Units are stored electronically, removing risks associated with lost or damaged physical certificates.
- Faster portfolio adjustments: Moving investments between schemes or accounts is quicker due to standardized electronic processes.
- Comprehensive reporting: Consolidated statements, dividend details, and capital gains reports are provided, aiding tax planning and compliance.
Cons & Additional Costs of Demat Holding
While a demat account offers convenience, it also carries certain drawbacks that investors should weigh carefully:
- Annual maintenance fees: Demat accounts typically charge yearly maintenance costs, which are avoidable if SIPs are held directly with AMCs.
- Added intermediaries: Transactions pass through brokers or depository participants, which can slow processes compared to direct AMC investments.
- Restricted direct plan availability: Many brokers do not provide access to “direct” mutual fund plans, leaving investors with only “regular” plans that carry higher expense ratios.
- Difficulty of setup: Opening and linking a demat account requires additional formalities, unlike the simpler AMC route.
- Fragmented costs: Besides maintenance fees, charges such as transaction fees or service taxes may apply, raising overall investment expenses.
Platform Policies vs Regulatory Norms
The table below compares SIPs held through demat
accounts versus direct folio-based SIPs, discussing both regulatory requirements and platform features for each:
| Category | SIP with demat account | SIP without demat account |
| KYC & registration | KYC mandatory as per SEBI; nomination compulsory for demat holdings | KYC mandatory before SIP registration; nomination required in folio-based holdings |
| Transaction record | Units held in dematerialised form; Consolidated Account Statement (CAS) issued; governed by SEBI Master Circulars | Units maintained in Statement of Account (SoA) format; periodic folio statements from AMC/RTA |
| Investment scope | Required for ETFs and listed mutual fund NFOs; direct plans may be limited depending on broker platform | Allowed for regular mutual fund SIPs except ETFs or listed schemes; full access to direct plans |
| Platform features | Managed via broker platforms; consolidated view of equities, ETFs, and mutual funds; electronic transactions synced with exchange timings | SIP payments processed through bank mandates (e-NACH); separate AMC or platform tracking; simpler setup |
| Cost & maintenance | Annual demat account maintenance and brokerage fees may apply | Minimal or no additional fees; direct AMC charges only |
| Setup & complexity | Requires linking SIPs to demat account; may be slightly complex | Simple, quick setup; no account linking required |
ETF vs SIP: Demat Required Only for ETFs
Investors should note that a demat account is mandatory only for ETFs, while regular mutual fund SIPs can be done without it. The difference lies in the following aspects:
- Nature of investment
ETFs are listed on stock exchanges and trade like stocks, so units must be held in electronic form via a demat account. SIPs in mutual funds, however, are subscription-based and credited directly to the investor’s folio.
- Transaction process
Buying or selling ETFs requires a brokerage-enabled demat account to execute exchange trades. Regular SIPs are managed through AMC portals or banks, eliminating the need for dematerialised holdings.
- Access & convenience
While SIPs offer ease of registration, systematic investments, and direct plan access without demat, ETFs provide exchange-based trading, intraday liquidity, and price transparency, which mandates demat holding.
Conclusion
Investors can start systematic investments smoothly through AMCs or online platforms without extra formalities. The process is flexible, convenient, and maintains proper compliance and record-keeping, making it easier to manage mutual fund holdings. If thinking about account requirements, the question of do you need a demat account for SIP arises, but the system allows direct participation without one.
FAQs
Yes, SIP investments in mutual funds can be made without a demat account. Units are held in statement form by the fund house or registrar. Demat accounts are not mandatory for SIPs unless investing in ETFs or mutual funds traded on stock exchanges.
No, demat accounts aren’t compulsory for SIPs in regular mutual funds. SIP can be started through AMCs or online platforms directly. However, if SIP is in ETFs or stock exchange-traded securities, holding a demat account is necessary for electronic settlement and holding.
SIP is an investment plan where a fixed amount is invested periodically in mutual funds. A demat account is an electronic repository that holds securities like stocks, ETFs, and mutual fund units. SIP is an investment method; demat is a holding account for securities.
Yes, SIP investments can be withdrawn anytime by redeeming mutual fund units. Redemption depends on current NAV and some schemes might levy exit loads if redeemed before a lock-in period. Always check scheme terms for applicable charges or restrictions before redeeming SIP investments.
Yes, investing in mutual funds without a demat account is possible. Direct investments through AMCs or online platforms don’t require demat accounts. A demat account is only mandatory when investing in stocks or ETFs, but not for regular mutual fund purchases or SIPs.
