India’s capital market is continuously evolving. The digitisation revolution in Indian financial markets has brought unprecedented changes over the past decades. Keeping in mind technology, transparency, and protection of investors’ interests, the Securities and Exchange Board of India (SEBI) and the government have taken several visionary decisions from time to time. Bringing all securities listed on stock exchanges to 100% demat (dematerialised) format was one such step that reduced the possibilities of fraud in the share market and made transactions quick and transparent.

SEBI and the government keep beating the drum of digitalisation, but why are they deliberately maintaining backwardness in the case of mutual funds? By converting shares and private company shares to demat format, they have shown that they know how to prevent fraud. Then why haven’t steps been taken so far towards making mutual funds – an important investment instrument worth ₹72 lakh crores – mandatory in demat format? Is this deliberate negligence?

Current Market Size and Significance
The country’s Asset Management Companies (AMCs) handle the money of crores of investors. According to the latest figures released by the Association of Mutual Funds in India (AMFI), the total AUM at the end of May 2025 was ₹72.18 lakh crores. This shows sufficient growth compared to previous months and remarkable year-on-year growth, with the industry’s AUM crossing the ₹70 trillion mark in April 2025.

This is beyond understanding: mutual funds’ volume today is almost equal to the volume of listed securities. Despite this, it remains stuck in traditional and complex systems. Bringing mutual fund units to 100% demat format will not only make investors’ work easier but will bring revolutionary change to the entire market. Just as RBI fixes the rates of dollars and foreign currencies every day, mutual funds’ NAV is announced daily, so why can’t these same units be bought and sold at the same day’s price? Is it lack of technology or lack of willpower?

Current Situation and Challenges
Currently, investors have two options for investing in mutual funds – either through Statement of Account (SOA) or through demat account. However, demat format is merely an option, not mandatory. This creates several problems such as delays in redemption, excessive paperwork, and difficulty for investors in getting a comprehensive view of their portfolio.

The size of India’s mutual fund industry is massive. By May 2025, the Assets Under Management (AUM) of the Indian mutual fund industry has reached ₹72.20 lakh crores. This figure shows how popular mutual funds have become among Indian investors. Such a large market requires a uniform, transparent, and efficient system.

Benefits of Demat Format
Making mutual funds mandatory in demat format will have several important benefits:

Benefits for Investors
Real-time Transactions: Investors will be able to instantly redeem and purchase online, getting the latest price of the same day without waiting for a day.

Integrated Portfolio View: Investors will be able to see all their investments – shares, bonds, and mutual funds – in the same demat account, making portfolio management easier.

Reduction in Paperwork: Keeping mutual funds in demat format will eliminate the need for physical documents or paperwork. All work being paperless will help realise the honourable Modi government’s Digital India dream.

Benefits for the Market
Volume Growth in Market: Making mutual funds tradeable will immediately result in a remarkable increase of more than ₹72 lakh crores in market volume based on current valuations.

Control on Wrong Selling: Possibilities of wrong selling of schemes by agents or distributors will be eliminated.

Opportunities for Brokers: Share market brokers will get large volumes, leading to growth in their business.

Digital Transformation: The entire mutual fund system will become digital, promoting India’s digital financial transformation.

Benefits for Fund Managers
Fund managers will get relief from the mental pressure of daily redemptions and new investments. Free from redemption pressure, they will be able to work on better and long-term strategies, making their investment decisions better.

Proposed Implementation Model to make mutual funds tradeable:
NSE’s Mutual Fund Service System (MFSS): NSE already provides MFSS, similarly BSE has BSE Star, through which investors can buy and sell mutual fund units. This system can be expanded and made mandatory for all mutual funds.

Trading Based on Daily NAV: Just as RBI fixes rates for foreign currencies every day, mutual fund companies announce their NAV every evening. Trading can happen the next day based on this NAV.
Use of Depository System: Depositories like NSDL and CSDL already provide the facility to keep mutual fund units in demat form. This arrangement can be made mandatory.

Expectations from the Government and SEBI
When SEBI has made demat format mandatory for listed securities and private limited companies, the time has come for the government and SEBI to discuss with all stakeholders and implement this important reform. By bringing mutual funds to mandatory demat format, India’s share market should be given a new foundation of transparency, liquidity, and investor confidence. This will not only be convenient for investors but will mark the beginning of a new era for the entire financial market.

The government and SEBI should prepare a roadmap to implement this change in collaboration with all stakeholders – Asset Management Companies, stock exchanges, depositories, and investors. This step will promote transparency, efficiency, and digitalisation in Indian financial markets, ultimately benefiting investors.

This change in India’s financial markets will mark the beginning of a new life, new era, and new direction, which will make an important contribution to our country’s economic development.

Thanks,
Rtn. Suneel Dutt Goyal
Director General, Imperial Chamber of Commerce & Industry (ICCI)
Ex. Vice President – Jaipur Stock Exchange Ltd.
Jaipur, Rajasthan
suneelduttgoyal@gmail.com