Capital market regulator SEBI has proposed a change that would enable third parties, such as employers or mutual fund companies, to make payments for investments on behalf of individuals. Currently, the Securities and Exchange Board of India mandates that all mutual fund (MF) investment payments must originate from the investor’s own bank account and proceed through RBI-authorized payment aggregators or SEBI-recognized clearing corporations.
To address risks associated with third-party payments, asset management companies (AMCs) are required to comply with the Prevention of Money Laundering Act (PMLA), verify that the source bank account belongs to the unit-holder, and utilize payment methods that maintain independent traceability, as per current regulations. All payouts must be credited to verified bank accounts of the investors to ensure a complete audit trail.
The mutual fund industry has requested to relax these stringent conditions for third-party payments in certain scenarios, such as salary payments by employers or commissions paid by AMCs, provided that adequate safeguards are established, SEBI noted in a consultation paper regarding the proposed norms.
One significant proposal allows employers to invest in MF schemes on behalf of employees through salary deductions. According to the draft, this facility would be available to all listed and EPFO-registered companies, as well as AMCs. However, participation would be voluntary, and only employees who consent to salary deductions for their chosen MF schemes would be eligible.
SEBI acknowledged that this proposal recognizes the common practice of employers offering various benefits and savings options to employees. It would permit AMCs to accept consolidated payments for mutual fund investments via payroll systems, contingent upon employee consent.
Currently, employees invest indirectly in equity markets through contributions to the Employees’ Provident Fund Organisation (EPFO), which is authorized to allocate up to 15% of its fresh accretions into equities via exchange-traded funds that track the Nifty50 and S&P BSE Sensex, as well as specific CPSE ETFs linked to government disinvestment. As of now, the EPFO has invested over ₹3 lakh crore in equities.
Similarly, the National Pension System (NPS) invests in market-linked retirement schemes. Though participation is mandatory for Central government employees who joined after 2004, it can also be voluntarily adopted by corporate entities for their employees. According to the NPS annual report, it managed ₹14.44 lakh crore as of the end of fiscal year 2023-24.
The proposed changes could potentially transform the investment landscape for all stakeholders, providing investors with discipline for long-term investment. Beyond immediate implications, this initiative might pave the way for establishing an ecosystem in India akin to the US 401(k) system.
However, operational challenges may arise, particularly regarding the circumstances under which employees might discontinue their participation or leave the company. Questions remain about whether the investment mechanism will allow for portability similar to EPFO accounts and whether SEBI will provide clear guidelines for hassle-free withdrawals.
The introduction of such a system could drive AMCs to innovate in product offerings tailored to diverse investor needs, although it is crucial that they avoid mis-selling. For the market, these funds could enhance systemic stability and bolster investor confidence, especially amid current market volatility.
The industry is encouraged to embrace the proposed changes as a means of broadening market access and participation.
Published on May 22, 2026.
