In most countries, index funds are purchased through a Demat account which is an electronic account that holds securities like stocks, bonds, and mutual funds. However, there are a few ways you can buy index funds directly, especially if you are interested in mutual funds or ETFs that track an index.
Here are a couple of ways through which you can buy index funds without requiring a Demat account:
1. Direct Mutual Fund Investment:
In India, you are allowed to invest in mutual funds directly. This process is available through the AMC or some investment platforms.
How to Invest:
Through the AMC Website: Most mutual fund houses allow direct investments in index funds. You can navigate to their websites, open an account, and select your preferred index fund in which you would like to invest.
There are so many online investment platforms and apps available that, through them, you can easily invest in mutual funds. A direct investment option is available on those platforms where the units of the mutual fund are held under your name.
SIP (Systematic Investment Plan): You can also create SIPs for index funds while investing via the direct mutual fund route.
Key Points:
– You would not need to open a Demat account since the mutual fund units are held directly with the fund house.
– It is pretty simple, and you can create one-time investments or SIPs.
– The direct mutual funds generally have lower expense ratios than broker-based funds.
2. ETFs
Exchange-Traded Funds (ETFs) are similar to index funds, but they trade on stock exchanges like individual stocks. Typically, ETFs are purchased through a Demat account, but there are ways to buy them without directly using one.
How to Invest:
An Online Broker: You can invest in ETFs using some brokers or investment portals without having to open a Demat account. You can invest through the direct plans offered by platforms like VSRK Capital using Fractional Share Investing.
Fund Investment Apps: Some apps will allow you to invest in an ETF by directly linking your account to your bank account.
Key Points:
– ETFs trade throughout the day. This means that there is more flexibility in trading time compared to mutual funds since the latter are traded at the end of the trading day.
– ETCs/ ETFs are inexpensive means to own the index fund, though these are normally purchased through the Demat account, yet from the discussions above, direct investment through the above services is allowed.
3. Robo- Advisors
The robo-advisors are computer-based programs designed to construct and maintain diversified portfolios on your behalf on account of your objectives and risk-profile. A majority of robo advisors rely on an index fund as a hub of the portfolio.
How to Invest:
Robo-Advisor Platforms: Some of the robo-advisor platforms, such as Betterment, Wealthfront, or Ellevest for international investors, allow you to invest in portfolios that contain index funds, and they usually do not require opening a Demat account directly.
Local Advisors: In India, platforms like VSRK Capital, providing investments in index funds through automated portfolios.
Key Points:
– Robo-advisors take care of your investments for you and are usually much cheaper than a traditional financial advisor.
– You can choose index fund portfolios that automatically rebalance your assets.
4. Investment Through Banks
Some banks are also providing direct investment options in mutual funds, which may include index funds.
How to Invest:
Contact your bank HDFC, ICICI, SBI and check whether they provide you a platform to invest directly in the mutual fund.
Key point:
– You may do it through their net banking or mobile banking apps or filling up the form at the bank branch.
Conclusion:
Direct Mutual Funds: You can invest in index funds directly through mutual fund houses or platforms without a Demat account. This is the easiest and most popular way to invest in index funds.
ETFs: While ETFs typically require a Demat account, some online platforms and investment apps might allow you to invest in them without one.
Robo-Advisors: Automated platforms that use index funds as part of your portfolio, usually not requiring a Demat account.
Bank Platforms: Some banks let you invest directly in mutual funds through their online banking without a Demat account.
In general, direct investments in mutual funds are probably the easiest way to get index funds. You can open your account with a mutual fund house or use a platform without bothering about the formalities of having a Demat account.