The Securities and Exchange Board of India (Sebi) has allowed mutual fund investors holding their units in demat form to set up automatic instructions for regular withdrawals and transfers between schemes, ending a long-standing difference between demat and non-demat investments.
In a circular issued on Friday, the regulator said investors with mutual fund units in demat accounts will be able to give a standing instruction or a one-time instruction for systematic withdrawal plans (SWPs) and systematic transfer plans (STPs), instead of placing a fresh request every time a transaction is due.
The facility will be rolled out in two phases, with unit-based instructions by 31 January 2027 and amount-based instructions by 30 April 2027.
Depositories have been tasked with implementing the framework and publishing operational guidelines by 31 October 2026.
An SWP allows investors to withdraw money from a mutual fund at regular intervals, such as every month or quarter, instead of redeeming the entire investment at one time. It is commonly used by retirees or investors looking for a steady income while keeping the remaining money invested.
An STP allows investors to move money gradually from one mutual fund scheme to another within the same fund house. For example, an investor may shift money every month from a low-risk debt fund into an equity fund instead of investing the entire amount in one go. This helps reduce the risk of entering the stock market at the wrong time.
Until now, these automatic instructions were available only for mutual fund units held in statement of account (SOA) form, where the fund house maintains the investment records. Investors holding units in demat accounts, where investments are held electronically like shares, had to submit separate instructions for every withdrawal or transfer.
Each transaction currently involves multiple steps. For an STP, the investor must instruct the depository participant to redeem units from one scheme and purchase another scheme of the same fund house. The instruction is routed through a stockbroker, executed on the stock exchange, settled through the clearing corporation and communicated to the mutual fund registrar before fresh units are credited to the investor’s demat account.
A similar process applies to every SWP transaction before redemption proceeds reach the investor’s bank account.
By allowing standing mandates, Sebi aims to simplify this process and bring operational parity between demat and non-demat mutual fund investments.
The move follows a consultation paper issued by Sebi in February. The proposal was also backed by a Sebi-appointed working group and the regulator’s Secondary Market Advisory Committee.
Under the framework, the first phase will allow investors to create standing instructions based on a fixed number of units to be redeemed or transferred at a specified frequency. The second phase will extend the facility to fixed-amount withdrawals and transfers.
While industry-wide data on the use of SWPs and STPs is not available, market participants said STPs are widely used by investors to spread their investments over time, while SWPs are mainly used by those seeking regular cash flows from their investments.