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SEBI Unlocks Demat MF Redemptions: Automating Systematic Plans
The Securities and Exchange Board of India (SEBI) has taken a significant step towards unifying the investor experience in the mutual fund industry by proposing the introduction of automated standing instructions for Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) for units held in demat accounts. Issued on February 5, 2026, the consultation paper addresses a long-standing friction point for millions of investors: the manual intervention required for every redemption or transfer of mutual fund units held electronically. This move is poised to democratize systematic investment plans for a vast segment of the market previously encumbered by administrative complexities.
Bridging the Demat-SOA Divide
The current process for demat mutual fund holders necessitates submitting individual Delivery Instruction Slips (DIS) for each periodic withdrawal or transfer. This administrative burden is identified by SEBI as a significant deterrent to systematic financial planning, often leading to execution delays and discouraging the use of demat accounts for long-term income generation or rebalancing strategies. The proposed automation aims to replicate the ease of access and systematic functionality available to investors holding units in the traditional Statement of Account (SOA) format, where redemptions can be made for specific rupee amounts.
The Indian mutual fund industry has witnessed substantial growth, with Assets Under Management (AUM) reaching approximately ₹68.08 lakh crore by November 2024. Concurrently, the number of demat accounts in India has surged, crossing 21.6 crore by December 2025, with unique investors exceeding 12 crore by September 2025. This expanding demat-holding population highlights the growing importance of aligning digital investment infrastructure with investor needs for systematic financial planning.
Restoring Investor Control and Streamlining Operations
SEBI's proposal seeks to bypass the need for investors to grant Power of Attorney (PoA) to brokers for automated transactions, a practice that can compromise asset security. By integrating a native standing instruction facility within the depository system, investors can maintain direct control over their assets while benefiting from automated convenience. This initiative also aims to reform the settlement cycle, which currently involves a multi-step process between brokers, exchanges, and clearing corporations for each transaction. Automation is expected to reduce administrative lag and the potential for operational failures, while also streamlining reconciliation with Registrars and Transfer Agents (RTAs).
The working group, comprising representatives from stock exchanges, depositories, and RTAs, recommended extending the standing instruction facility to demat-held units to ensure parity with SOA holdings. SEBI plans a phased implementation, starting with unit-based transactions in Phase 1, followed by advanced amount-based payouts and strategies like appreciation-based switches and Swing STPs in Phase 2, which will be facilitated through RTAs.
Broader Regulatory Context and Future Outlook
This initiative is consistent with SEBI's ongoing efforts to enhance investor protection, simplify processes, and foster greater transparency within the mutual fund industry. Previous reforms have included reducing expense ratios, capping brokerage costs, and refining disclosure norms. The current proposal directly addresses a key friction point that has historically differentiated demat holdings from SOA in terms of systematic investment utility. By removing this barrier, SEBI is likely aiming to accelerate the financialization of savings and encourage broader adoption of digital investment platforms. The move is expected to boost overall AUM by making demat accounts more attractive for systematic investment and withdrawal strategies, thereby deepening retail participation and potentially shifting more assets towards the digital ecosystem. Investors and stakeholders have until February 26, 2026, to submit their comments on the consultation paper.