The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing to extend the facility of standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) to mutual fund units held in demat form.
Currently, investors can give standing instructions for SWP and STP only when their mutual fund units are held in Statement of Account (SOA) mode.
In SOA mode, units are held directly with the asset management company (AMC) and recorded by the registrar and transfer agent (RTA), without being stored in a demat account.
However, investors who hold mutual fund units in demat form must give separate instructions for every redemption or transfer, which makes the process more complex.
What Are SWP and STP?
According to SEBI, SWP allows investors to set standing instructions with the AMC or RTA for periodic redemption of a fixed amount or a specific number of units.
STP enables automatic transfer of funds from one mutual fund scheme to another scheme of the same AMC through simultaneous redemption and subscription.
These instructions usually remain valid until the investor cancels them, an expiry date is reached, or the holdings are fully used.
Investors can also customise their instructions, such as withdrawing only the appreciated portion or gradually increasing or decreasing withdrawal amounts.
Challenges for Demat Investors
At present, investors holding mutual funds in demat form must issue delivery instruction slips (DIS) for every SWP or STP transaction.
They may also rely on mechanisms like two-factor authentication through depository participants, power of attorney (PoA), or demat debit and pledge instructions.
SEBI noted that these processes increase operational burden and may reduce direct investor control, especially when PoA is used.
For every STP transaction involving demat-held units, investors must instruct the depository participant to sell units of one scheme and buy units of another.
These instructions pass through stock brokers, stock exchanges, clearing corporations, RTAs, and finally result in credit of units to the investor’s demat account.
Similarly, for SWP transactions, redeemed units are extinguished through corporate action, and the proceeds are credited to the investor’s bank account through a multi-step process.
Working Group and Recommendations
To study the feasibility of the proposal, SEBI formed a working group with representatives from stock exchanges, depositories, and RTAs.
The group examined several aspects, including registration of SWP and STP instructions, standardisation of data fields, permissible variants, cancellation mechanisms, and information flow among intermediaries.
The working group recommended extending the standing instruction facility to mutual fund units held in demat form, similar to those held in SOA mode.
Based on these recommendations, SEBI’s Secondary Market Advisory Committee (SMAC) discussed the proposal in its November 2025 meeting and suggested implementing it in two phases.
Two-Phase Implementation Plan
Phase I
In Phase I, investors will be allowed to register one-time standing instructions for SWP or STP through depositories or stock exchange members, either online or offline.
Execution will take place on stock exchange order-entry platforms, enabling unit-based and date-specific SWP and STP transactions.
SEBI stated that this phase would require minimal changes to existing processes, no major modifications at the RTA level, and no additional corporate action charges for AMCs.
Phase II
In Phase II, standing instructions will be processed through RTAs, offering greater flexibility such as amount-based SWP and STP, appreciation-based transfers, swing STPs, and other variants.
Execution triggers may be managed by RTAs or stock exchanges, while keeping the overall investor experience largely unchanged.
SEBI plans to implement Phase I first and then move to Phase II after reviewing feedback from stakeholders.
Public Feedback and Deadline
Through the consultation paper, SEBI has invited public comments on extending the standing instruction facility to demat-held mutual fund units, the proposed processes in both phases, and the phased rollout approach.
Public comments can be submitted until February 26, 2026. After that, SEBI will take a final decision on the framework.
