Demat Accounts: How to invest in ETFs? A step-by-step guide

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demat account offers various advantages, providing investors with a range of options for diversifying their funds. They can invest in instruments like mutual funds, bonds, and exchange-traded funds (ETFs). Investors also leverage demat accounts to build wealth by investing in fundamentally sound stocks for the long term.

This approach enables them to benefit from capital appreciation, as well as additional perks such as dividends and bonus shares. Also Read: Can I hold bonds and mutual funds in my demat account? Mintgenie explains Moreover, in India, many brokers provide a 2-in-1 demat account, merging it with a trading account. This setup empowers investors to access derivative markets and engage in trading activities seamlessly.

In this article, we will explain how investors can utilise their demat accounts to invest in exchange-traded funds (ETFs). Exchange-traded funds represent a type of mutual fund that typically mirrors an index or sector and is traded on a stock exchange, similar to individual stocks. While functioning similarly to regular mutual funds, ETFs require investors to have a demat account for transactions due to their stock market trading nature.

In essence, ETFs track indexes like the CNX Nifty or BSE Sensex. When purchasing shares/units of an ETF, investors are essentially acquiring shares/units of a portfolio mirroring the performance of its underlying index. Unlike other index funds, ETFs aim to replicate rather than outperform their respective indexes, essentially mirroring the market rather than attempting to beat it.