Sebi proposal could simplify withdrawals from demat mutual funds

Markets regulator Sebi on Thursday proposed to extend the facility of standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) to mutual fund units held in demat

If you hold mutual fund units in demat form, managing regular withdrawals or transfers could soon become much simpler.

 

The Securities and Exchange Board of India (Sebi) has proposed allowing investors to set up standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) for mutual fund units held in demat accounts — a facility that is currently available only for units held in statement of account (SOA) mode.

 

What the proposal means for you

 

Right now, investors who hold mutual funds in demat form must submit separate instructions for every SWP or STP transaction, which can be time-consuming and inconvenient.

 

If Sebi’s proposal is implemented, demat investors will be able to:

 

• Set automatic withdrawal instructions (SWP) from mutual funds
• Schedule automatic transfers between schemes (STP)
• Avoid placing repeated manual requests for recurring transactions

 

In simple terms, demat mutual fund investing could become as seamless as bank auto-debits or SIPs.

 

Why this change matters

 

Over the past few years, more investors have begun holding mutual funds through demat accounts using brokers and stock exchange platforms. However, operational features such as SWP and STP have remained limited compared to traditional mutual fund accounts.

 

By extending standing instructions to demat holdings, Sebi aims to:

 

Improve ease of investing

Reduce operational friction

Align demat mutual fund investments with SOA-based investments

 

Simplify processes for both investors and intermediaries

 

This is particularly helpful for:

 

Retirees using SWPs for regular income

Investors shifting gradually between equity and debt funds

Financial planners managing systematic portfolio rebalancing

 

How the rollout may happen

 

Sebi has proposed implementing the change in two phases.

 

Phase I

 

Investors can register unit-based SWP/STP mandates

Instructions can be given through depositories or stock exchange members

Transactions will be executed on stock exchange platforms

Only minimal system changes will be required

 

Phase II

 

SWP/STP instructions will be processed through registrars and transfer agents (RTAs)

Investors may get access to more flexible options such as:

 

• Amount-based SWP/STP
• Appreciation-based withdrawals
• Swing STP structures

 

What happens next

 

Sebi has invited public comments on the proposal until February 26, after which the final framework may be notified.

 

If implemented, the change would remove one of the key operational differences between demat-held mutual funds and traditional mutual fund accounts, making long-term investing more convenient.