In a move aimed at easing long-standing operational hurdles for investors, the Securities and Exchange Board of India (SEBI) has proposed introducing automated standing instructions for mutual fund units held in demat form.
The proposal seeks to bring parity between demat holdings and the Statement of Account (SOA) mode by enabling seamless execution of Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP).
On February 5, 2026, SEBI released a consultation paper outlining a framework for periodic redemptions and transfers from demat-held mutual funds without the need for repeated manual approvals. If implemented, the change would significantly reduce paperwork and execution delays for investors using stock exchange-based mutual fund platforms.
Addressing the manual instruction hurdle
SEBI noted that under the current system, investors holding mutual fund units in demat accounts must submit a separate Delivery Instruction Slip (DIS) for every redemption or transfer. The regulator described this requirement as cumbersome and a deterrent to systematic financial planning, particularly for those seeking regular income or portfolio rebalancing through SWPs and STPs.
The repetitive nature of manual instructions, whether physical or digital, often leads to missed schedules and discourages wider use of demat accounts for long-term investment strategies.
Preserving investor control
To avoid the friction of repeated instructions, some investors currently rely on Power of Attorney (PoA) or Demat Debit and Pledge Instructions (DDPI) with brokers. However, SEBI observed that such arrangements can dilute direct investor control over assets. The regulator said the proposed standing instruction mechanism within the depository system would allow automation without requiring investors to cede custody or control.
The objective, according to the paper, is to combine operational ease with stronger investor protection.
Streamlining settlement and reconciliation
SEBI also highlighted inefficiencies in the existing settlement process for demat-based STPs, which involves multiple intermediaries, including brokers, stock exchanges and clearing corporations, for each installment. Every transfer currently requires fresh order placement, monitoring of pay-in obligations and reconciliation with mutual fund registrars.
The proposed system would automate these steps by pre-registering instructions, reducing the risk of operational lapses and ensuring timely execution on scheduled dates.
Role of working group and phased rollout
The proposal is based on recommendations from a SEBI-constituted working group comprising representatives from stock exchanges, depositories and Registrars and Transfer Agents (RTAs). The group examined the registration process for SWP and STP transactions and called for standardisation across platforms.
SEBI plans to roll out the changes in two phases.
Phase one will allow one-time registration of unit-based standing instructions through depositories and stock exchanges, enabling fixed-unit withdrawals or transfers at regular intervals using existing infrastructure.
Phase two will shift processing to RTAs, facilitating amount-based withdrawals and advanced variants such as appreciation-based switches and swing STPs.
According to SEBI, the second phase will enable more sophisticated financial planning tools, particularly benefiting retirees and long-term investors who wish to withdraw gains while preserving capital.
Public feedback invited
SEBI said the proposed framework is intended to deliver a uniform investor experience across demat and non-demat holdings, without altering how investors interact with brokers or depositories. Market participants and the public are invited to submit comments on the proposals by February 26, 2026, via the regulator’s official website.
If adopted, the initiative is expected to remove one of the final administrative barriers limiting the use of demat accounts for systematic mutual fund investments, aligning operational convenience with investor safeguards.
