India’s securities regulator on Wednesday unveiled a draft framework that could let employees invest in mutual funds through salary deductions, marking a significant shift from current rules requiring investments to come only from an investor’s own bank account.
The Securities and Exchange Board of India (SEBI) released a consultation paper proposing to allow limited third-party payments in mutual funds under regulated circumstances. The centerpiece is a payroll-linked systematic investment plan system where employers could invest in mutual fund schemes on behalf of employees through salary deductions, similar to how Provident Fund and National Pension System contributions work.
The facility would be restricted to listed companies, Employees’ Provident Fund Organisation-registered entities, and Asset Management Companies themselves. Only interested employees could opt into the arrangement, and participation would remain voluntary. Employees must provide explicit consent, choose their mutual fund schemes, and the investments would continue to be recorded in the employee’s own name.
Redemption proceeds and dividend payouts would be credited only into the bank account of the respective investor, SEBI clarified in the paper.
In a separate proposal, the regulator suggested allowing AMCs to pay commissions to empanelled mutual fund distributors partly in the form of mutual fund units rather than cash. Only AMFI-registered distributors would be eligible, and the units would be credited directly to the distributor as the beneficiary. SEBI said this would provide a convenient, seamless, and disciplined way for distributors to invest in mutual fund units and encourage long-term saving.
The consultation paper also proposes enabling investors to donate a portion of their subscription amount, dividend, or redemption proceeds toward social causes through a regulated framework. Donations could be channeled toward zero coupon zero principal instruments issued by not-for-profit organizations registered on the Social Stock Exchange, or directly to NGOs identified in scheme documents. SEBI outlined two approaches: launching dedicated mutual fund schemes with a social contribution feature or allowing existing schemes to offer such an option.
Even while proposing third-party payment structures, SEBI emphasized that strong anti-money laundering safeguards remain core requirements. The draft circular proposes stringent KYC verification for both payer and beneficiary, validation of relationships between parties, mandatory electronic fund trail tracking, segregated reconciliation processes, and compliance with anti-money laundering norms.
The consultation paper was released on May 20, 2026, and SEBI has invited public comments until June 10, 2026. The regulator may modify the proposals after receiving feedback from industry participants, investors, and other stakeholders.
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