Holding mutual funds in a demat account? SEBI's latest move will make SWPs and STPs much easier

If you hold your mutual fund investments in a demat account, setting up a Systematic Withdrawal Plan (SWP) or a Systematic Transfer Plan (STP) has not been as straightforward as it is for investors holding units in the traditional Statement of Account (SoA) format.

That is set to change as market regulator SEBI has allowed investors with mutual fund units in demat form to create standing instructions for SWPs and STPs.

In its circular, SEBI said it has decided to "extend the facility of creating standing instructions for SWP/STP mandate for the mutual fund units held in demat form, to facilitate ease of doing business."

Why does this matter?

Today, investors holding mutual funds in demat accounts cannot set up automatic instructions for periodic withdrawals or transfers in the same way as those holding units in SoA form. The new framework removes that gap, allowing demat investors to automate these transactions as well.

An SWP lets investors withdraw money from a mutual fund at regular intervals, making it a popular choice for those looking for a steady income stream, especially retirees. An STP, on the other hand, helps investors gradually move money from one mutual fund scheme to another within the same fund house instead of shifting the entire amount at one go.

As the regulator noted, SWPs can be used for the "periodic redemption of a specified number of mutual fund units or amount," while STPs enable investors to move investments from one scheme to another "by way of redemption from one scheme and subscription to the other scheme of the same Mutual Fund."

How will the rollout happen?

The facility will be introduced in two phases.

• In the first phase, investors will be able to set up unit-based SWPs and STPs, where a fixed number of mutual fund units will be redeemed or transferred at a pre-decided frequency.

• The second phase will introduce amount-based SWPs and STPs, allowing investors to withdraw or transfer a fixed rupee amount at regular intervals.

Important dates investors should know

The regulator has asked depositories to:

• Roll out the unit-based SWP/STP facility by January 31, 2027.

• Launch the amount-based facility by April 30, 2027.

• Publish a common operational framework by October 31, 2026.

What prompted the change?

According to SEBI, the decision follows representations received from depositories as well as recommendations made by a SEBI working group and the Secondary Market Advisory Committee.

Once implemented, investors who prefer to hold all their investments in a single demat account will be able to automate withdrawals and transfers without having to submit new instructions each time.

Disclaimer: The information contained in this article is for informational purposes only and does not represent investment advice from Upstox. Investment decisions should be made based on independent research or consultation with a registered financial advisor. Past performance is not indicative of future results.