Why fintech apps ask you to open a demat account

Most such apps make profits by cross-selling other financial products to their customers

- Sashind Ningthoukhongjam

Babu Lal is the go-to finance guy for his family, friends and acquaintances. So when his cousins decided to start investing in December 2022, they sought Lal’s help. Lal, a 32-year-old fintech consultant based in Churu, Rajasthan, recommended that they start with direct mutual fund (MF) plans, without going through distributors and save on commissions. The next step was to help them open a mutual fund investing account. But that proved to be cumbersome.

At first, Lal tried to open an account with, INDmoney, an app that facilitates people’s journey in investing. Lal was flummoxed when INDmoney asked him to open both a demat account and a SBM Bank account. A demat account is mandatory for trading in stocks. It is not so for MFs. You can invest in mutual funds directly through an asset management company (AMC) or a registered MF distributor (MFD).

INDmoney’s accounts enabled domestic and foreign stocks investing features but Lal wanted to invest only in MFs. He then tried Groww, another online financial services platform. But that app also wanted him to mandatorily check out the ‘NSE equity’ and ‘BSE equity’ segments. Groww declined to comment on this. INDmoney did not respond to Mint’s queries.

Experts say direct mutual fund plans do not generate enough revenue for the fintech apps and so they cross-sell other financial products. That is the reason, they say, such apps have made it a requirement for new investors to register in other segments as well.

MF apps and demat accounts

Direct MF apps allow users to transact in MFs by integrating their system with a transaction platform. For instance, they can integrate with registrar and transfer agents (RTAs) such as CAMS or Karvy. Alternatively, they can choose to integrate with exchange-run platforms like BSE Star MF or NSE MF.