SEBI issues consultation paper on extending SWP, STP standing instructions to demat-held mutual funds; seeks comments till Feb 26

Public comments can be submitted until February 26, 2026, after which SEBI will take a final view on the framework.

• SEBI proposes standing instructions for SWP and STP in demat-held mutual funds
• Investors can submit public comments on the proposal until February 26, 2026
• Plan includes two-phase rollout for easier SWP and STP transactions in demat form

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Securities and Exchange Board of India (SEBI) on Wednesday issued 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

At present, investors can give standing instructions for SWP and STP only if their mutual fund units are held in statement of account (SOA) mode. That is, units held directly with the asset management company (AMC) and recorded by the registrar and transfer agent (RTA), without being stored in a demat account. Investors holding mutual fund units in demat form are required to place separate instructions for each redemption or transfer.

In its consultation paper, SEBI said SWP allows investors to place standing instructions with the AMC or RTA for periodic redemption of a specified number of units or a fixed amount, while STP enables automatic transfer from one mutual fund scheme to another scheme of the same AMC through simultaneous redemption and subscription. These instructions typically remain valid until cancelled by the investor, an expiry date is reached, or the underlying holdings are exhausted. Investors can also customise SWP or STP instructions, such as withdrawing only the appreciated portion or gradually increasing or decreasing withdrawal amounts.

Currently, investors holding mutual funds in demat form must issue delivery instruction slips (DIS) for every SWP or STP transaction or rely on mechanisms such as two-factor authentication through depository participants, power of attorney or demat debit and pledge instructions. The regulator pointed out that such processes not only increase operational burden but may also reduce direct investor control, particularly in cases where PoA is used.

Explaining the current process, SEBI said that for every STP transaction involving demat-held units, an investor must first instruct the depository participant to sell units of one scheme and buy units of another. The instructions are then routed through stock brokers and stock exchange platforms, followed by clearing corporation settlement, reconciliation with RTAs and eventual credit of units back into the investor’s demat account. A similar multi-step process is followed for SWP transactions, where redeemed units are extinguished through corporate action and proceeds are credited to the investor’s bank account.

To examine the feasibility, SEBI constituted a working group comprising representatives from stock exchanges, depositories and RTAs. The group examined aspects such as 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 demat-held mutual fund units in a manner similar to SOA-held units.

Based on these recommendations, SEBI’s Secondary Market Advisory Committee (SMAC) discussed the proposal in its November 2025 meeting and suggested a two-phase implementation.

Under Phase I, investors would be allowed to register one-time standing instructions for SWP or STP through depositories or stock exchange members, either online or offline. Execution would take place on stock exchange order-entry platforms, enabling unit-based and date-specific SWP and STP transactions. SEBI said this phase would require minimal changes to existing processes, no major modifications at the RTA level and would not result in additional corporate action charges for AMCs.

Under Phase II, standing instructions would be processed through RTAs, allowing greater flexibility such as amount-based SWP and STP, appreciation-based transfers, swing STPs and other variants. This phase would also allow execution triggers to be managed by RTAs or stock exchanges, while keeping the investor experience broadly unchanged.

SEBI has proposed implementing Phase I first, followed by Phase II after reviewing feedback from stakeholders. Through the consultation paper, the regulator has sought public comments on extending the standing instruction facility to demat-held mutual fund units, the proposed processes under both phases, and whether the phased rollout approach is appropriate.

Public comments can be submitted until February 26, 2026, after which SEBI will take a final view on the framework.