SEBI proposes extending SWP, STP facility to demat-held mutual fund units

Markets regulator Securities and Exchange Board of India (SEBI) has proposed extending the facility of standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) to mutual fund units held in demat form, a move aimed at improving ease of doing business and investor convenience.

At present, standing instructions for SWP and STP are available only for mutual fund units held in statement of account (SOA) mode. Investors holding units in demat form are required to provide separate instructions for every withdrawal or transfer, making systematic transactions operationally cumbersome.

In a consultation paper issued on Thursday, SEBI said the proposed change would help streamline operations across the mutual fund ecosystem. “Extending the facility of standing instructions for SWP and STP to mutual fund units held in dematerialised form would facilitate ease of doing business for various stakeholders of the mutual fund industry,” the regulator said.

The proposal is expected to particularly benefit long-term investors, retirees and those using mutual funds for regular income or portfolio rebalancing. It could also reduce reliance on blanket powers of attorney, which SEBI noted may dilute investors’ direct control over their holdings.

SEBI has proposed implementing the framework in two phases. In Phase I, investors would be able 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, with minimal changes required at registrars and transfer agents (RTAs).

However, the regulator clarified that Phase I would support only unit-based, date-specific SWP and STP transactions. More flexible options, such as amount-based withdrawals, appreciation-based switches and swing STPs, would be enabled in Phase II, when processing of standing instructions is routed through RTAs.

The proposal is based on recommendations of a working group comprising stock exchanges, depositories and RTAs, and subsequent deliberations by SEBI’s Secondary Market Advisory Committee.

SEBI has invited public comments on the consultation paper until February 26, after which it is expected to finalise the framework and announce timelines for implementation, starting with Phase I.

Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Investors should do their own research or consult a registered financial advisor before making investment decisions.