The Securities and Exchange Board of India (SEBI) has issued a circular extending the facility of creating standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) to mutual fund units held in demat form. According to the latest circular from The Financial Express, this facility was previously available only for mutual fund units held in physical form by investors. The decision aims to bring parity between demat and non-demat investors while improving convenience and ease of doing business in mutual fund investments. As reported by The Financial Express, the facility will be implemented in two phases, with the first phase allowing investors to register unit-based SWP and STP mandates, where a fixed number of units are redeemed or transferred at a specified frequency. Mutual fund investors can currently avail the facility of SWP by creating standing instructions with the mutual fund or its RTA for periodic redemption of a specified number of mutual fund units or amount, while investors can also use the STP facility by creating standing instructions to transfer their investment from one scheme of a mutual fund to another scheme of the same mutual fund through redemption from one scheme and subscription into another. As per SEBI, the move extends a facility previously available only for statement of account (SOA)-based holdings, enabling greater convenience for mutual fund investors through the depository ecosystem.
SEBI has designated depositories as the nodal agencies for implementing the new framework, with specific implementation timelines set for each phase. As reported by The Financial Express, the first phase will make the facility available for unit-based SWPs and STPs where standing instructions are based on withdrawal or transfer of a specified number of mutual fund units. The second phase will extend the facility to amount-based SWPs and STPs where standing instructions are based on withdrawal or transfer of a specified amount. The second phase will extend the facility to amount-based SWPs and STPs where standing instructions are based on withdrawal or transfer of a specified amount. The first phase will introduce unit-based SWP and STP mandates, allowing a fixed number of mutual fund units to be redeemed periodically or transferred from one scheme to another within the same mutual fund. The second phase will extend the facility to amount-based SWP and STP mandates, enabling investors to instruct fixed-value withdrawals or transfers at specified intervals. Before these deadlines, depositories will jointly publish a standard operational framework by October 31, 2026, and make necessary amendments to their bye-laws, rules and systems. The circular comes into force with immediate effect.
The regulatory change addresses a significant gap in the mutual fund ecosystem as online mutual fund distributors increasingly move investors from statement of account (SoA) mode to demat holdings. As reported by The Financial Express, the growing shift to demat holdings had left investors without access to automated SWP and STP facilities, which are widely used to generate regular cash flow from investments and systematically shift money from one mutual fund scheme to another, typically from debt to equity. SWPs allow investors to withdraw a fixed amount or specified number of units at regular intervals, while STPs help systematically shift money from one mutual fund scheme to another. SEBI had first proposed this move in a consultation paper released on February 5, 2026. 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. The facility is expected to provide greater flexibility for investors who prefer planning cash flows in value terms rather than by the number of units. Until now, automatic instructions were available only for mutual fund units held in statement of account (SOA) form, where the fund house maintains the investment records, while investors holding units in demat accounts had to submit separate instructions for every withdrawal or transfer.
The new framework aims to simplify the current complex process where each transaction involves multiple steps across multiple entities. As reported by Mint, 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, with the instruction 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 bring operational parity between demat and non-demat mutual fund investments. 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. The move follows a consultation paper issued by SEBI in February, with the proposal also backed by a SEBI-appointed working group and the regulator's Secondary Market Advisory Committee.
