Mutual Fund Unit Holders In Demat Form Could Soon Set Up Automatic Withdrawals, Transfers

Investors holding mutual fund units in demat form could soon be allowed to set up automated withdrawals and transfers, a facility currently available only for folio-based investments. The Securities and Exchange Board of India (Sebi) has proposed to extend standing instructions for systematic withdrawal plans (SWP) and systematic transfer plans (STP) to mutual fund units held in dematerialised form. If implemented, this would remove a key operational irritant for demat investors, who currently need to place fresh instructions for every withdrawal or transfer.

Sebi floated the proposal through a consultation paper released on February 5, 2026. The regulator has invited stakeholders and the public to submit comments by February 26. After review, Sebi is expected to finalise the framework and announce the implementation timeline.

What’s Changing For Investors

At present, standing instructions for SWP and STP are available only for mutual fund units held in statement of account (SOA) mode. Investors using demat accounts, typically through brokers and stock exchange platforms, are required to submit separate delivery instructions for each transaction.

Once Sebi’s new proposal is implemented, investors holding mutual fund units in demat form would be able to set up automatic periodic withdrawals from a scheme through SWP, schedule transfers between schemes through STPs and make recurring transactions without repeated manual intervention.

Why It Matters

Over the past few years, a growing number of retail investors have shifted to holding mutual funds through demat accounts, attracted by the convenience of a single platform for equities, bonds and funds. However, this shift has come with trade-offs.

Operational features such as SWPs and STPs, crucial for income planning and gradual asset reallocation, have remained cumbersome in demat mode. Every transaction requires a fresh instruction, adding friction and increasing the scope for delays or errors.

Sebi believes extending standing instructions will improve the ease of doing business across the mutual fund ecosystem, benefiting investors as well as brokers, depositories and registrars.

The proposal is particularly relevant for retirees relying on SWPs for steady cash flows, investors gradually moving money between equity and debt funds, and financial planners who use STPs for disciplined portfolio rebalancing.

Implementation Proposed In Two Phases

Sebi has proposed implementing the change in two phases to minimise disruption.

Phase I: In the first phase, investors would be allowed to register unit-based SWP and STP mandates through depositories or stock exchange members. Execution of these instructions would take place on stock exchange platforms. Sebi has said that during this phase, only minor system changes would be needed, mainly at the depositories and exchanges.

Phase II: In the second phase, SWP and STP instructions would be processed through registrar and transfer agents (RTAs). This would allow for more advanced options, such as withdrawals based on a fixed amount, appreciation-only withdrawals, and flexible STP structures. The investor interface, however, is expected to stay mostly the same.

Why The Proposal Was Introduced

In its consultation paper, Sebi observed that although investors holding units in demat form can technically carry out SWP or STP transactions, the existing process is cumbersome. It often requires delivery instruction slips, two-factor authentication, or powers of attorney, all of which reduce convenience and control for investors. Allowing standing instructions would simplify the process and create parity between demat-held and SOA-held mutual fund units, Sebi said.