The Securities and Exchange Board of India (SEBI) has introduced a new facility for mutual fund investors by allowing the creation of standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) for mutual fund units held in demat form. This will make investing more convenient and improve the ease of doing business for investors who hold their mutual fund investments in demat accounts.
What is SWP?
A Systematic Withdrawal Plan (SWP) allows a mutual fund investor to withdraw money from a mutual fund scheme at regular intervals. Instead of redeeming the entire investment at once, the investor can instruct the mutual fund to redeem a fixed number of units or a fixed amount periodically. This facility is commonly used by retirees and investors looking for regular income from their investments.
What is STP?
A Systematic Transfer Plan (STP) allows an investor to transfer investments from one mutual fund scheme to another scheme of the same mutual fund company at regular intervals. Under an STP, units are redeemed from one scheme and the proceeds are invested in another scheme. Investors generally use STP to gradually shift money from debt funds to equity funds or vice versa.
What Was the Problem Earlier?
Earlier, investors who held mutual fund units in demat form could not create standing instructions for SWP or STP. Although these facilities were available for mutual fund units held in non-demat (physical or statement of account) mode, investors using demat accounts had to submit fresh instructions every time they wanted to make systematic withdrawals or transfers.
SEBI Extends the Facility to Demat Holdings
To remove this limitation, SEBI has decided to extend the facility of creating standing instructions for SWP and STP to mutual fund units held in demat form. The decision has been taken after considering representations received from depositories, recommendations of a SEBI Working Group, and suggestions made by the Secondary Market Advisory Committee. The objective is to provide greater convenience and simplify investment management for mutual fund investors.
Implementation Will Be Done in Two Phases
SEBI has decided to implement the new facility in two stages.
Phase I – Unit-Based SWP/STP
In the first phase, investors will be able to create standing instructions based on a fixed number of mutual fund units. Under this facility, a specified number of units will be redeemed at regular intervals either for withdrawal or for purchasing units of another scheme of the same mutual fund.
Phase II – Amount-Based SWP/STP
In the second phase, investors will be able to create standing instructions based on a fixed amount instead of fixed units. Under this option, a predetermined amount will be withdrawn or transferred at regular intervals to another scheme of the same mutual fund. This provides greater flexibility for investors who prefer receiving or investing a fixed monetary amount.
Timeline for Implementation
SEBI has assigned Depositories the responsibility of implementing this new framework.
- Phase I (Unit-Based SWP/STP) must be implemented by 31 January 2027.
- Phase II (Amount-Based SWP/STP) must be implemented by 30 April 2027.
Responsibilities of Depositories
SEBI has directed depositories to take several steps for successful implementation of the new facility. They must jointly publish a standard operating framework on their websites by 31 October 2026. They are also required to amend their bye-laws, rules and regulations wherever necessary, make required system changes, and widely publicize the provisions of the circular through their websites.
SEBI Circular: Key Changes for SWP/STP in Demat Mutual Fund Units
| Aspect | Earlier | Now (SEBI Circular) |
|---|---|---|
| Standing Instructions for SWP | Not available for mutual fund units held in demat form. | Allowed for mutual fund units held in demat form. |
| Standing Instructions for STP | Not available for mutual fund units held in demat form. | Allowed for mutual fund units held in demat form. |
| Who Benefits? | Only investors holding mutual fund units outside the demat system could use standing instructions. | Investors holding mutual fund units in demat accounts can also create standing instructions. |
| Phase I | No such facility. | Unit-based SWP/STP (fixed number of units) to be introduced. |
| Phase II | No such facility. | Amount-based SWP/STP (fixed amount) to be introduced. |
| Phase I Implementation Deadline | Not applicable. | 31 January 2027 |
| Phase II Implementation Deadline | Not applicable. | 30 April 2027 |
| Role of Depositories | No framework for SWP/STP standing instructions in demat form. | Depositories will implement the framework, publish operating guidelines, amend rules, and make system changes. |
| Standard Framework | Not available. | To be jointly published by depositories by 31 October 2026. |
| Purpose of the Change | Investors had to submit instructions separately for SWP/STP in demat holdings. | Enables automatic periodic withdrawals and transfers, improving convenience and ease of doing business. |
Is this helpful?
The new framework is expected to make investing in mutual funds much easier for investors who prefer holding their investments in demat accounts. Investors will no longer need to submit repeated instructions for every withdrawal or transfer. Instead, they will be able to automate regular withdrawals and transfers in the same way as investors holding mutual funds outside the demat system. This will improve convenience, reduce paperwork, and encourage greater use of demat-based mutual fund investments.
Click here to download SEBI Circular
