SEBI allows SWP, STP standing instructions for mutual fund units held in demat accounts

The Securities and Exchange Board of India (SEBI) has introduced a significant investor-friendly reform by allowing mutual fund investors holding units in demat form to create standing instructions for Systematic Withdrawal Plans (SWPs) and Systematic Transfer Plans (STPs). The move is aimed at improving ease of investing and bringing parity between investors holding mutual fund units in physical and demat formats.

At present, investors can set up standing instructions for SWPs and STPs only through mutual funds or their Registrar and Transfer Agents (RTAs) when units are held outside the demat system. This facility has not been available for demat-held mutual fund units.

SEBI said the decision follows representations from depositories as well as recommendations made by a SEBI working group and the Secondary Market Advisory Committee. The regulator believes the change will facilitate ease of doing business and improve investor convenience.

An SWP enables investors to withdraw a fixed amount or a specified number of mutual fund units at regular intervals, making it a popular option for retirees and those seeking periodic cash flows. An STP, on the other hand, allows investors to systematically transfer investments from one mutual fund scheme to another within the same fund house, helping manage market volatility and asset allocation.

Rollout in two phases

SEBI has directed that the new framework be implemented in two phases. In the first phase, investors will be able to create unit-based SWP and STP mandates, where a fixed number of units can be redeemed or transferred at a specified frequency. This phase must be implemented by January 31, 2027.

The second phase will introduce amount-based SWP and STP mandates, allowing investors to specify a fixed amount for periodic withdrawals or transfers. This phase is scheduled to be completed by April 30, 2027.

Depositories to lead implementation

SEBI has designated depositories as the nodal agencies responsible for implementing the framework. They have been directed to jointly publish a standard operating framework by October 31, 2026, amend relevant bye-laws and regulations where necessary, make required system changes and disseminate the new provisions to market participants.

The circular has come into force with immediate effect, although the operational rollout will follow the prescribed timelines.

The latest reform is expected to benefit investors who prefer holding mutual fund units in demat accounts by enabling automated withdrawals and transfers without sacrificing the convenience already available to investors holding units in non-demat form. It also strengthens SEBI's broader push to simplify investment processes and enhance operational efficiency across India's mutual fund industry.