SEBI Proposes to Simplify Exits for Mutual Fund Investors in Demat Form

The Securities and Exchange Board of India (SEBI) has issued a consultation paper on allowing standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) for mutual fund units held in demat form. At present, such instructions are available only for units held in statement of account (SOA) mode.  

Public comments on the proposal have been invited until February 26, 2026. 

Present Difference Between Holding Modes 

In SOA mode, units are held directly with the asset management company and recorded by the registrar. Investors in this format can set up standing instructions for periodic withdrawals or transfers. 

Investors holding units in demat form must currently submit separate instructions for each SWP or STP transaction. This results in repeated requests even for regular, scheduled transactions. 

Process Followed for Demat Transactions 

For an STP involving demat-held units, the investor must first instruct the sale of units in one scheme. A separate instruction is then required to buy units in another scheme of the same fund house. 

The transaction moves through brokers, stock exchange platforms and clearing corporations before the units are credited back into the demat account. In SWP transactions, redeemed units are extinguished through corporate action and the proceeds are credited to the investor’s bank account. 

2-Phase Rollout Suggested 

Based on inputs from a working group and discussions at SEBI’s Secondary Market Advisory Committee, the regulator has proposed a phased implementation. 

• Phase I would allow investors to register one-time standing instructions for unit-based SWP or STP through depositories or stock exchange members. Execution would take place on exchange order platforms with minimal changes at registrar systems.
• Phase II would route the instructions through registrars, allowing features such as amount-based withdrawals, appreciation-based transfers and other variants. 

Read More: SEBI Proposes Revamp of ‘Fit and Proper’ Norms for Market Intermediaries! 

Conclusion 

After the consultation period closes on 26 February, SEBI will review the feedback and take a final view on the proposed framework. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.   
 
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