Maharashtra, Gujarat and UP lead the race in new demat accounts

The number of demat account holders in India has grown rapidly in the last few years due to greater financial literacy and growing awareness of investments and markets.

One hard lesson the pandemic has taught the world is the importance of savings and investment, which is now reflected in the growth of demat accounts.

Overall, the number of demat account holders rose to 11.45 million, a 43% increase over the last year, according to BSE Registered Investors data. It is important to note that in a country of approximately 140 million people, only about 8% of people invest in financial instruments, showing low penetration.

Most of the investors are from Maharashtra and Gujarat
The highest number of investors in the market (2.31 million) are from Maharashtra, mainly because of Mumbai, the financial capital of the state. Next in line is Gujarat, a state with enthusiastic investors who contributed 1.18 billion crowns to demat accounts.

Despite being the most populous state in the country, Uttar Pradesh ranks third. However, they are the only states with more than a million demat accounts.

It is followed by the states of Rajasthan, Karnataka, West Bengal, Tamil Nadu, Madhya Pradesh and Andhra Pradesh – each of which has between 50 and 66 million demats. Bihar, Haryana, Telangana, Kerala, Punjab, Odisha and Assam are the states with more than 20 thousand accounts.

The Himalayan region of Ladakh has the least number of demat account holders at 242

Analysts say demat accounts may continue to grow rapidly
The growth of demat accounts accelerated after the pandemic as the markets witnessed high activity. Smaller cities are showing interest in opening demat accounts, analysts said. Most of the pull came through mutual funds, which saw a consistent inflow of monthly SIP contributions. SIP inflows hit a record high of ₹ 12,693 crore in August 2022.

“With the maximum number of SIP participations coming from smaller towns, it is very evident that demat accounts will grow manifold as mutual funds will go through banks and intermediaries (financial advisors). I think the undertone in tier II and tier III is even sharper than in metro cities,” Sanjiv Bhasin, director at IIFL Securities, told Business Insider India.

In fact, the number of retail foils in the mutual fund industry was at an all-time high of $10.89 million as of August 31, 2022.

Assets under management of the mutual fund industry have grown more than five times in the last 10 years from ₹ 7.53 trillion in 2012 to ₹ 39 trillion right now.

The Indian mutual fund industry has grown manifold since the launch of the ‘Sahi Hai Mutual Funds’ campaign in 2017 which has done wonders for the industry. Apart from this, the fact that KYC standards in mutual funds are more convenient and paperless has also helped immensely.

“KYC has become easier and while traveling in smaller cities, I have seen that there is a huge demand for SIPs and a compulsion to know how to invest in stocks. These are small investors and hence they find investing through mutual funds more attractive,” said Bhasin.

NS Venkatesh, CEO, Mutual Fund Association of India, feels that much more needs to be done to spread the word across the country, especially in tier-II and tier-III cities, to encourage investment. Despite the rise in demat accounts, the percentage of the total population investing in financial instruments is still a paltry 8%. Much needs to be done to ensure that more people can benefit from India’s growth story.

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