Sebi allows SWP, STP standing instructions for mutual funds held in demat accounts; phased rollout by April 2027

Markets regulator Securities and Exchange Board of India (Sebi) has allowed investors holding mutual fund units in demat form to create standing instructions for Systematic Withdrawal Plans (SWPs) and Systematic Transfer Plans (STPs), a move aimed at enhancing investor convenience and streamlining transactions in the mutual fund ecosystem.

The regulatory change bridges a long-standing gap between demat and statement of account (SOA)-based mutual fund holdings. Until now, investors could register standing instructions for SWPs and STPs only for units held in SOA form through asset management companies (AMCs) or their registrar and transfer agents (RTAs). The facility was unavailable for investments held in demat accounts.

Facility to be rolled out in two phases

"It has been decided to extend the facility of creating standing instructions for SWP/STP mandates for the mutual fund units held in demat form, to facilitate ease of doing business," Sebi said in a circular.

The decision follows representations received from depositories and recommendations made by a Sebi-constituted working group as well as the Secondary Market Advisory Committee.

Under the new framework, the rollout will take place in two phases. In the first phase, investors will be able to create standing instructions for unit-based SWPs and STPs, allowing redemption of a fixed number of mutual fund units at specified intervals for periodic withdrawals or transfers to another scheme within the same mutual fund.

Amount-based transactions to begin by April 2027

The second phase will introduce amount-based SWPs and STPs, enabling investors to redeem or transfer a fixed monetary amount at regular intervals. This is expected to provide greater flexibility for investors who prefer planning cash flows in value terms rather than by the number of units.

To facilitate implementation, Sebi has designated depositories as the nodal agencies for operationalising the framework. Depositories have been directed to launch the unit-based SWP/STP facility by January 31, 2027, while the amount-based facility must be implemented by April 30, 2027.

In addition, depositories have been asked to jointly publish a standard operating framework on their respective websites by October 31, 2026, providing operational clarity to market participants.

It is to be mentioned that SWPs and STPs are widely used by mutual fund investors for systematic withdrawals, retirement income planning and gradual portfolio reallocation. Industry participants have long sought parity in transaction facilities for demat-held and SOA-held mutual fund units, particularly as more investors adopt demat accounts for holding financial assets.