The Securities and Exchange Board of India (SEBI) has moved to simplify the redemption process for millions of people holding mutual fund units in demat accounts by proposing the introduction of automated standing instructions.
On February 5, 2026, the regulator issued a consultation paper seeking to bridge the gap between demat and Statement of Account (SOA) modes by allowing Systemic Withdrawal Plans (SWP) and Systemic Transfer Plans (STP) to function without manual intervention.
This move aims to fix the current administrative burden where demat holders must submit fresh instructions for every periodic transaction, effectively making automated withdrawals a reality for stock exchange-based fund holdings.
#1: Ending the manual delivery instruction slip barrier
The market regulator has identified that the current manual requirement for demat units acts as a significant deterrent for those wanting to plan their finances systematically. According to the paper, the existing process is cumbersome because “investors holding MF units in demat form are required to place separate instructions for redemption of units (through Delivery Instruction Slip (DIS)) for each withdrawal or transfer.”
This specific hurdle forces individuals to either deal with physical paperwork or rely on complex digital authorisations for every single monthly or quarterly payout. The repetitive nature of this task often leads to execution delays and discourages people from using their demat accounts for long-term income generation or rebalancing strategies.
#2: Restoring direct control without power of attorney
To bypass current friction, some people use Power of Attorney (PoA) arrangements with their brokers, but SEBI notes that this choice often comes at the cost of asset security. The consultation document points out that while authorizations like PoA or Demat Debit and Pledge Instructions (DDPI) are available, “in case of PoA, this reduces the direct control of investors on their investments.”
By introducing a native standing instruction facility within the depository system, the regulator wants to ensure that individuals can maintain full custody of their assets while enjoying the ease of automated redemptions. This proposal aims to return “direct control” to the investor while providing the same level of convenience found in non-demat holdings.
#3: Reforming the high-friction settlement cycle
Under the current system, every single transfer between schemes for a demat holder involves a multi-step process involving brokers, exchanges, and clearing corporations. The paper explains that presently, a “DP passes on the instructions to Stock Broker for execution of sell and buy transaction on Stock Exchange platform” and subsequently “Stock Broker executes orders, submits instruction to DP to transfer selling units to CC for pay-in.”
This chain of events must be repeated for every single STP installment, creating room for errors and administrative lag. The manual nature of the current setup requires constant monitoring by the broker to ensure that the pay-in is completed on the specific scheduled date, which is prone to operational failures.
#4: Automating reconciliation with RTAs
By allowing standing instructions, SEBI aims to automate the reconciliation and settlement of these pay-ins. According to the paper, the current manual process requires that “after reconciliation and settlement of pay-in, the details are shared with MF-RTA” who then “confirm the number of units to be credited to the CC.”
The proposal seeks to streamline this flow so that the data transfer between depositories and RTAs happens automatically on preset dates. This automation removes the need for the broker to initiate a fresh order entry for every cycle, ensuring that the payout hits the bank account without human intervention.
#5: Guidance from the SEBI working group
To draft this framework, the regulator formed a specialised working group featuring representatives from stock exchanges, depositories, and RTAs. This group was tasked with reviewing the “registration process of SWP/STP in the depository system/RTA system/ Stock Exchange platform” as well as the “standardisation and identification of fields for SWP/STP transaction.”
The Working Group concluded that the facility must be extended to ensure parity across the industry. According to the paper, “The Working Group recommended that the facility of standing instructions for SWP/STP may be extended to investors holding the MF units in demat form as is currently available for Mutual Fund units held in the Statement of Account (SOA) mode.”
Phase 1: Unit-based automation via stock exchanges
SEBI intends to roll out these changes in a structured manner, starting with a phase that utilizes the existing infrastructure of depositories and stock exchanges. According to the paper, Phase 1 will involve a “one-time registration of standing instructions for SWP/STP requests with Depositories/Stock Exchanges for execution of orders on order entry platform of Stock Exchanges.”
This initial step focuses primarily on unit-based transactions, allowing a fixed number of units to be sold or transferred at regular intervals. This phase is considered a critical starting point because it requires minimal changes to the existing infrastructure used by Registrars and Transfer Agents (RTAs).
Phase 2: Advanced amount-based payouts
The second stage of the proposal aims to introduce more sophisticated financial planning tools. Under Phase 2, the processing will move through the Registrar and Transfer Agents (RTAs), which the paper notes “shall facilitate amount-based and other variants of SWP/STP.”
Introducing capital appreciation and swing STPs
Once this second phase is active, people will have access to high-end investment strategies that allow for dynamic asset movement. According to the paper, “This will also provide the flexibility of extending other variants of standing instructions for STP/SWP such as: (a) Amount based SWP/STP (b) appreciation-based switches, (c) Swing STP, etc.”
These tools are particularly useful for retirees or long-term planners who wish to only withdraw the profits earned on their capital while leaving the original investment amount untouched. It marks a significant step toward unifying the investor experience in the Indian mutual fund industry, it noted.
Maintaining unified experience across platforms
The integration with RTAs in the second phase ensures that the user experience remains consistent regardless of the platform used for the initial purchase. The document states that there will be “no major difference in investor experience as the investor continues to deal with the member/depository as is being done today.”
By moving the trigger control to the RTA and Stock Exchanges in Phase 2, the regulator allows for much tighter integration with the fund’s internal records. This transition is expected to complete the “Ease of Doing Business” cycle for the various stakeholders involved in the mutual fund ecosystem.
Conclusion
By automating the withdrawal and transfer process, SEBI is trying to remove the final administrative barriers that made demat accounts less attractive for systemic planners. Stakeholders and the general public have until February 26, 2026, to submit their comments on these proposals through the official SEBI website.