Investing in mutual funds through salary deductions, much like Provident Fund (PF) or National Pension System (NPS), could soon become a reality if a new proposal by the Securities and Exchange Board of India (Sebi) gets the green light.
In a released on Wednesday, the market regulator proposed changes that would allow certain third-party payments in mutual funds — a shift from the current system where investments must come only from an investor’s own bank account.
The move is aimed at making investing easier while continuing to follow strict safety and compliance rules.
At present, mutual fund investments can only be made using the investor’s own bank account. Sebi now wants to allow limited forms of third-party payments under a regulated framework.
This means employers, mutual fund companies and even social contribution structures may be allowed to make payments into mutual fund schemes on behalf of investors, subject to proper checks and safeguards.
The regulator said the proposed changes would continue to follow rules under the Prevention of Money Laundering Act (PMLA) and maintain investor protection standards.
One of the biggest proposals in the draft paper is a payroll-linked mutual fund SIP system.
Under this model, employers could invest in mutual fund schemes on behalf of employees through salary deductions, similar to how PF and NPS contributions are made.
However, the facility would not be open to all employers.
According to Sebi’s proposal, only listed companies, firms registered with the Employees’ Provident Fund Organisation (EPFO), and Asset Management Companies (AMCs) themselves would be allowed to offer this arrangement.
“Such facility would be available to all listed and EPFO registered companies and the AMCs themselves and only interested employees may opt for such an arrangement and agree for salary deduction for MF schemes of their choice,” mentioned the consultation paper.
The proposed payroll-linked SIP will not be automatic.
Employees would need to give clear consent and choose to participate in the arrangement. Even though the money may come through the employer, the mutual fund investment would still remain in the employee’s own name.
This means the employee would continue to be the owner of the investment and the units allotted.
Donations through mutual fund units also proposed
Sebi’s draft framework also proposes allowing certain social contribution structures through mutual fund units.
The idea is to create regulated ways for such contributions while ensuring proper monitoring and compliance. The proposals are part of Sebi’s wider effort to modernise mutual fund operations and make investing smoother without weakening safeguards.