In a consultation paper issued on 5 February, the markets regulator said the change is aimed at improving ease of doing business and bringing parity between mutual fund units held in statement of account (SoA) form and those held in dematerialized form.
Mint explains what Sebi has proposed and why it matters.
What are the proposals?
Sebi has proposed allowing investors to register standing instructions for SWP and STP even when their mutual fund units are held in demat form. At present, such standing instructions are available only for units held in SoA form, whereas demat investors often have to place a manual redemption request.
Under the proposal, the framework will be rolled out in two phases. In the first phase, investors will be able to register unit-based SWP or STP instructions through depositories or stock exchanges. Once registered, these instructions will be executed through stock exchange order-entry platforms.
In the second phase, the processing of SWP and STP instructions will move to mutual fund registrars, allowing more complex variants such as amount-based withdrawals, appreciation-based switches, and swing STPs.
What are SWP and STP?
An SWP allows an investor to withdraw money from a mutual fund scheme at regular intervals instead of redeeming a lump sum. The withdrawals can be scheduled monthly, quarterly or at any other fixed frequency.
An SWP is typically used by investors who need a regular income, such as during retirement, or who want to withdraw money gradually in a tax-efficient way instead of redeeming a lump sum, while keeping part of their investment exposed to the market.
An STP allows investors to move money gradually from one mutual fund scheme to another, typically from a low-risk fund, such as a liquid or debt fund, into an equity fund. This helps investors spread their market entry over time and reduce the risk of investing all at once.
The instrument is commonly used when investors have a lump sum but want to invest in equities in a staggered manner to reduce market-timing risk, or when they want to rebalance their portfolio by systematically moving money between equity and debt, including deploying proceeds from maturing fixed deposits or large cash inflows.
Data on consolidated SWP and STP flows is not available. Industry participants said that though STP is widely used by investors, SWP has seen less traction so far.
How have SWP and STP worked for investors holding mutual fund units in demat form so far?
For every withdrawal or transfer, they were required to place a fresh instruction, either by submitting a delivery instruction slip (DIS) to their depository participant or through electronic authorization mechanisms such as two-factor authentication, power of attorney or demat debit and pledge instructions. In the case of STP, each transaction involved multiple steps, including placing sell and buy instructions, execution through a stockbroker on the exchange platform, settlement through clearing corporations, and subsequent updates by the registrar. A similar process is applied to each SWP transaction, with redemption proceeds credited to the investor’s bank account after settlement. As a result, SWP and STP transactions in demat form had to be executed each time manually, rather than through an automated standing instruction.
Why were the changes needed?
Sebi said the existing framework does not adequately support investors who hold mutual fund units in demat form, even though demat holdings have become more common over the years. This creates an inconsistency, as investors holding the same mutual fund schemes in SoA form enjoy greater flexibility in setting up systematic withdrawals or transfers.
The number of demat accounts rose 55% to 216 million as of December 2025, compared to the same period in 2023.
When mutual fund units are held in SoA form, SWP and STP are automated through a standing instruction registered with the mutual fund or its registrar. On each scheduled date, the registrar triggers the redemption, calculates the applicable net asset value (NAV), processes the payout or switch, and updates the investor’s folio records without any further action from the investor.
What does this mean for investors and mutual funds?
Investors holding shares in demat form are expected to benefit, as the processes of SWP and STP will become more efficient with fewer intermediaries. The advantage could be felt most by those using online platforms such as Zerodha and Groww to manage their investments.
“Mutual fund investors are using some of the new-age trading platforms, which store units in demat mode. The proposed changes would help investors on such platforms to efficiently do SWPs and STPs,” said Deepak Shenoy, chief executive at Capitalmind Mutual Fund.
The implementation of phase 1 would not require any changes at the registrar or transfer agent level, and only minimal modifications to the existing order-entry processes on stock exchange platforms, Sebi said in the draft paper. Depositories, however, would need to undertake system enhancements at their end to enable the framework.
For phase 2, at the mutual fund level, some updates to the current infrastructure may be needed, but they may not be major.
