From Mutual Funds to Insurance: How Financial Systems Make Investing Hassle-Free

March 28, 2025 / Vignesh / Human Behavior

Investing in mutual funds can feel overwhelming, especially with all the financial jargon thrown around. Terms like “Depository,” “Depository Participant,” “RTA,” “KRA,” “Demat,” and “KYC” might sound confusing, but don’t worry—we’re here to break it all down for you. Once you understand these concepts, you’ll see how they fit into the process of investing in mutual funds. Let’s start by explaining these terms in simple language.

Key Terms Explained

  1. Depository: Think of a depository as a digital vault. It holds your investments like stocks and mutual fund units in electronic form, ensuring safety and easy management.
  2. Depository Participant (DP): A DP is like the front desk of the depository. It acts as the intermediary between you (the investor) and the depository. ICICI Demat, for example, is a Depository Participant.
  3. RTA (Registrar and Transfer Agent): RTAs, such as CAMS or KFintech, help mutual fund companies manage investor records. They handle tasks like unit allocation, account statements, and dividend payouts.
  4. KRA (KYC Registration Agency): Before investing, complete your Know Your Customer (KYC) verification. KRAs maintain this KYC record, so you don’t have to repeat the process for every investment.
  5. Demat (Dematerialized Account): A demat account is where you hold your investments digitally. It’s like a bank account, but it holds your stocks and mutual fund units instead of money.
  6. KYC (Know Your Customer): This is a mandatory process where you provide your personal details, such as PAN and Aadhaar, to verify your identity before investing.
  7. Folio Number: A folio number is a unique identifier assigned to your mutual fund investments with a specific fund house. It helps track your holdings, manage multiple schemes, and simplify communication with the fund house.

Example Workflow 1: Directly Interacting with a Mutual Fund Company

If you choose to register directly with a mutual fund company, such as ICICI Mutual Fund, here’s how it works:

Step 1: Registering on the ICICI MF Portal

  1. Account Setup: Create an account on the ICICI MF portal by providing your PAN, email, mobile number, and bank details.
  2. KYC Process: Complete your KYC verification through a KRA like CAMS or KFintech if you haven’t done it already.
  3. Folio Creation: Once verified, the mutual fund company assigns you a folio number unique to your investments.

Step 2: Buying a Mutual Fund

  1. Log In and Search: Log in to the ICICI MF portal and select your desired scheme, such as ICICI Equity Fund.
  2. Place the Order: Enter the number of units and make payment via net banking, UPI, or other available modes.
  3. Processing: The mutual fund’s RTA processes your request, and units are allocated based on the NAV of the transaction day.
  4. Confirmation: You receive an email or SMS confirming your purchase.

Step 3: Managing Investments

  • If you invest in multiple schemes from ICICI MF, they’ll all appear under your account in the ICICI MF portal.
  • Separate folios are created if the details (like joint holders) differ across schemes.

Step 4: Generating Statements

  • You can request an account statement for your folio(s) directly from the ICICI MF portal. The statement includes:
    • Folio numbers.
    • Scheme names.
    • Purchase history and current valuation.

Step 5: Handling Dividends and Tax Reports

  1. Dividend Credit: Dividends are credited directly to your bank account registered with the ICICI MF portal.
  2. Dividend Report: The portal provides a dividend summary report for tax purposes, including scheme-wise payouts and TDS details.

Example Workflow 2: Investing Through a Demat Account (ICICI Demat)

If you prefer using a demat account like ICICI Demat, here’s how the workflow differs:

Step 1: Opening a Demat Account with ICICI Demat

  1. Register: Open a demat account with ICICI Direct, providing your PAN, Aadhaar, and other necessary documents.
  2. KYC Process: Complete your KYC verification as part of the account opening process via a KRA like CAMS or CVL.
  3. Activation: Once verified, your demat account is activated and linked to your bank account for seamless transactions.

Step 2: Buying a Mutual Fund

  1. Log In and Search: Log in to ICICI Direct and search for your preferred mutual fund, such as HDFC Equity Fund.
  2. Place the Order: Enter the amount or units you want to purchase and confirm your order.
  3. Processing: ICICI Demat forwards your order to the mutual fund’s RTA (e.g., CAMS for HDFC MF), and units are allocated based on the NAV of that day.
  4. Unit Allotment: These units are credited to your demat account, consolidating all your investments in one place.
  5. Confirmation: You will receive a confirmation email or SMS about your investment.

Step 3: Managing Investments

  • If you buy another scheme, say HDFC Balanced Advantage Fund, the same process is followed, and all units are held in your demat account.

Step 4: Generating Statements

  • You can request a Consolidated Account Statement (CAS) via ICICI Direct. This statement provides details of all your mutual fund holdings across different fund houses.
  • RTAs like CAMS and KFintech help generate these consolidated reports by aggregating your investment data.

Step 5: Handling Dividends and Tax Reports

  1. Dividend Credit: Dividends are credited to your linked bank account.
  2. Generating Reports: ICICI Direct provides a dividend report for tax compliance, summarizing payouts and TDS.

Adding an Insurance Repository Example

Just as depositories manage your mutual fund and equity investments, insurance repositories manage your insurance policies electronically. For example:

  1. Opening an e-Insurance Account: You register with an insurance repository like NSDL National Insurance Repository (NIR) or CAMSRep.
  2. Storing Policies: Your life, health, or motor insurance policies are digitized and stored in your e-insurance account.
  3. Policy Management: You can view, download, or manage all your policies from a single platform instead of keeping physical copies.
  4. Benefits: During claims or renewals, this centralized access simplifies the process and reduces paperwork.

How Does It Differ for Equity Investments?

If you’re buying equities through ICICI Demat, the process has a few key differences:

  1. Trading Platform: Unlike mutual funds, equity investments require using a trading platform like ICICI Direct to place buy or sell orders.
  2. Real-Time Transactions: Equity transactions occur in real-time during market hours, whereas mutual fund purchases are processed based on NAV at the end of the day.
  3. Settlement Cycle: Equity trades follow a T+2 settlement cycle (trade date + 2 days), while mutual fund units are allocated based on NAV at the end of the transaction day.
  4. Holding: Equity shares and mutual funds are also held in your demat account.
  5. Reports: ICICI Direct provides separate reports for equities, including trade details, profit/loss summaries, and tax compliance reports.

Conclusion

Financial service entities like depositories, depository participants, RTAs, KRAs, and insurance repositories work together to make financial transactions seamless and efficient. They ensure safety, transparency, and accessibility for investors. Whether you’re managing mutual funds, equities, or insurance policies, these systems simplify the process, allowing you to focus on your financial goals without worrying about the complexity behind the scenes. By understanding how these entities operate, you can confidently navigate the world of investments and insurance.

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