Demat fund investors may soon withdraw money more easily

Summary: Holding mutual funds in demat form has often meant more paperwork and less flexibility. SEBI now wants to change that. A new proposal could make systematic withdrawals and transfers far simpler for demat investors, putting them on par with SOA holders. Here’s why it matters.

The Securities and Exchange Board of India (SEBI) has proposed an important operational reform to make mutual fund investing more seamless for investors holding units in dematerialised (demat) form.

In a consultation paper issued on Thursday, the market regulator has sought public feedback on extending the facility of standing instructions for systematic withdrawal plans (SWP) and systematic transfer plans (STP) to mutual fund units held in demat accounts.

At present, investors who hold mutual fund units in demat form do not enjoy the same convenience as those holding units in the traditional statement of account (SOA) mode. While SWP and STP instructions can be registered once and executed automatically in SOA form, demat investors must provide fresh instructions, often through delivery instruction slips or broker authorisations, for every withdrawal or transfer. This not only adds friction but also increases operational complexity and dependence on intermediaries.

SEBI’s proposal aims to address this gap by allowing demat investors to register standing SWP and STP instructions, thereby aligning their experience with that of SOA investors.

SEBI’s proposal aims to address this gap by allowing demat investors to register standing SWP and STP instructions, thereby aligning their experience with that of SOA investors.

The regulator has suggested a phased approach. In the first phase, standing instructions would be registered and triggered through depositories and stock exchanges, enabling unit-based SWP and STP transactions. The second phase would deepen the framework by routing processing through registrars and transfer agents (RTAs), allowing more flexible variants such as amount-based withdrawals and other transfer options.

SEBI has invited comments from market participants and the public by February 26, 2026, after which the framework may be finalised and implemented in stages. If adopted, the move could mark an important step in harmonising mutual fund operations across holding formats, making systematic investing and withdrawals simpler for a growing base of demat investors.

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