SEBI Plans To Allow Payroll-Based Mutual Fund Investments For Employees

New Delhi, May 21 (KNN) Markets regulator the Securities and Exchange Board of India (SEBI) has proposed allowing third-party payments in mutual funds under select, well-defined circumstances, marking a significant shift from the current framework that mandates all investments to originate exclusively from an investor's own bank account. 

The regulator has invited public comments on the proposals until June 10.

Why the Change Is Being Considered

The existing regulatory framework requires mutual fund investments to be routed directly from the investor's bank account through RBI-authorised payment aggregators or SEBI-recognised clearing corporations — a safeguard designed to prevent misuse and ensure compliance with the Prevention of Money Laundering Act (PMLA).

However, acting on industry feedback and recommendations from the Mutual Fund Advisory Committee, SEBI has concluded that certain genuine use cases warrant a measured relaxation. 

"The intent is to strike a balanced approach that facilitates ease of investing in genuine cases while reinforcing robust safeguards against potential misuse," the regulator said.

Key Proposals

SEBI has proposed allowing employers to invest in mutual fund schemes on behalf of their employees through payroll deductions. The facility would be available to listed companies, EPFO-registered firms, and asset management companies (AMCs) themselves, and would remain entirely voluntary for employees. AMCs would be permitted to accept consolidated salary-deduction payments for such investments.

The regulator has also proposed allowing AMCs to pay trail commissions to empanelled mutual fund distributors (MFDs) partly or fully in the form of mutual fund units, rather than cash. SEBI noted this would encourage distributors to save and invest over the long term in a disciplined manner.

In a separate proposal, SEBI has suggested enabling investors to voluntarily contribute a portion of their subscription amount, dividend income, or redemption proceeds towards social causes through a regulated framework. 

Contributions could be channelled through zero coupon zero principal (ZCZP) instruments issued by not-for-profit organisations registered on the Social Stock Exchange, or directly to NGOs identified in the scheme documents. 

SEBI said routing donations through Social Stock Exchange-registered entities would provide a strong layer of transparency and ensure funds reach verified organisations.

To address PMLA-related risks inherent in third-party payment arrangements, SEBI has proposed a robust set of safeguards. These include enhanced KYC verification for both payer and beneficiary, a clear written mandate establishing the relationship between the two parties, an auditable electronic fund trail through segregated accounts with regular reconciliation, and a requirement that redemption proceeds be credited only to the beneficiary's verified bank account. 

AMCs will also be required to perform independent due diligence and maintain full transparency throughout.

(KNN Bureau)