Sebi Proposes Extending Automatic Withdrawal Facility to Demat Mutual Fund Investors
In a significant move aimed at enhancing operational efficiency for mutual fund investors, the Securities and Exchange Board of India (Sebi) is considering extending automatic withdrawal and transfer facilities to those who hold their mutual fund units in dematerialised (demat) form. This initiative seeks to bridge a long-standing operational gap between demat and non-demat holdings, potentially simplifying investment management for millions of investors across the country.
Consultation Paper Seeks Public Feedback
The market regulator issued a consultation paper on Thursday, inviting public comments on a proposal to allow standing instructions for systematic withdrawal plans (SWP) and systematic transfer plans (STP) for mutual fund units held in demat accounts. Currently, such standing instructions are exclusively available for units held in statement of account (SOA) mode, creating a disparity that Sebi now aims to address.
Systematic withdrawal plans enable investors to schedule periodic redemptions of a fixed amount or a specific number of units from a mutual fund scheme. On the other hand, systematic transfer plans facilitate automatic transfers from one scheme to another within the same asset management company through a simultaneous redemption and purchase process.
Current Process Complexity Highlighted
The consultation paper meticulously details the existing execution process to underscore its inherent complexity. For each STP transaction under the current framework, an investor must instruct their depository participant to sell units of one scheme and purchase units of another.
These instructions are then routed through a multi-step procedure involving a stockbroker, execution on the stock exchange, settlement via the clearing corporation, reconciliation, and finally communication to the mutual fund registrar. The registrar subsequently updates the investor's folios and credits the units to their demat account.
A similar intricate process applies to every SWP transaction, with redemption proceeds being credited to the investor's bank account only after settlement and confirmation, often causing delays and requiring repeated manual intervention.
Phased Implementation Proposed
Sebi has outlined a phased approach for rolling out this facility. In the initial phase, investors would gain the ability to register a one-time standing instruction for SWP or STP through depositories or stock exchanges.
This phase would specifically support unit-based SWP and STP transactions, which would then be executed automatically on stock exchange order-entry platforms without necessitating repeated investor intervention. This automation promises to streamline the entire process, reducing administrative burdens and enhancing convenience.
Industry Experts Welcome the Move
Jimmy Patel, managing director of Quantum Mutual Fund, expressed strong support for the proposed changes. "The changes are good for investors as it will give them more control of their SWP and STPs and democratize the framework," he stated. Patel further explained that previously, investors had to initiate transactions themselves or execute a power of attorney in favour of a broker or distributor who would execute transactions on desired dates. The new proposal empowers investors to manage these processes independently.
This development is particularly timely as India's mutual fund industry continues to expand, with increasing numbers of retail investors seeking sophisticated yet user-friendly investment tools. By aligning demat holdings with the convenience already available for SOA holdings, Sebi aims to foster greater participation and efficiency in the financial markets.
Public Comment Period Open
Sebi has invited public comments on the draft consultation paper until February 26, encouraging stakeholders including investors, mutual fund houses, depository participants, and financial advisors to provide their feedback. This collaborative approach ensures that the final framework will be robust, practical, and aligned with market needs.
The proposed extension of automatic facilities represents a progressive step towards modernizing India's mutual fund infrastructure, potentially setting a new standard for investor convenience and operational transparency in the rapidly evolving financial landscape.
