MUMBAI: India’s market regulator is considering extending automatic withdrawal and transfer facilities to mutual fund investors who hold their units in demat form, a move that would bridge a long-standing operational gap between demat and non-demat holdings.
In a consultation paper issued on Thursday, the Securities and Exchange Board of India (Sebi) sought public comments on allowing standing instructions for systematic withdrawal plans (SWP) and systematic transfer plans (STP) for mutual fund units held in dematerialised form. Such standing instructions are currently available only for units held in statement of account (SOA) mode.
SWPs allow investors to schedule periodic redemptions of a fixed amount or number of units from a mutual fund scheme, while STPs enable automatic transfers from one scheme to another within the same asset management company through a simultaneous redemption and purchase.
In SOA mode, investors can place a one-time instruction with the fund house or its registrar that remains valid until cancelled, expires, or the holdings are exhausted.
The consultation paper details the existing execution process to highlight its complexity. For each STP transaction, an investor must instruct the depository participant to sell units of one scheme and buy units of another.
These instructions are routed to a stockbroker, executed on the stock exchange, settled through the clearing corporation, reconciled, and then communicated to the mutual fund registrar, which updates folios and credits units to the investor’s demat account.
A similar multi-step process applies to every SWP transaction, with redemption proceeds credited to the investor’s bank account only after settlement and confirmation.
Sebi has proposed rolling out the facility in phases. In the first phase, investors would be able to register a one-time standing instruction for SWP or STP through depositories or stock exchanges. This phase would support unit-based SWP and STP transactions, which would then be executed automatically on stock exchange order-entry platforms without requiring repeated investor intervention.
“The changes are good for investors as it will give them more control of their SWP and STPs and democratize the framework. Earlier, the investor had to initiate transactions by themselves or execute a power of attorney in favour of the broker/distributor who would execute the transactions on the desired dates. Now, this can be done by the investor themselves,” said Jimmy Patel, managing director of Quantum Mutual Fund.
Sebi has invited public comments on the draft paper until February 26.
