The Securities and Exchange Board of India (SEBI) proposed on Wednesday to ease restrictions on third-party payments in mutual funds, allowing such transactions in specific instances. This includes salary deductions by employers for employee investments and commission payments to distributors in the form of mutual fund units.
Currently, investments in mutual funds must come directly from the investor’s bank account and be processed through RBI-authorized payment aggregators or SEBI-recognized clearing corporations. This framework was established to mitigate risks associated with money laundering and to ensure a comprehensive audit trail.
However, SEBI noted that the mutual fund industry has requested some relaxation in particular cases deemed genuine, such as employer salary payments and asset management companies (AMCs) paying commissions.
Payroll Investments
The proposal allows listed and EPFO-registered companies to facilitate mutual fund investments on behalf of employees via payroll deductions. This mechanism would enable AMCs to accept consolidated payments for mutual fund investments, as indicated in the consultation paper. Only employees who opt for this arrangement would be eligible, with the ability to choose their preferred schemes for salary deductions.
Additionally, SEBI has proposed that AMCs be allowed to compensate empanelled mutual fund distributors with trail commissions, or portions thereof, in the form of mutual fund units. The regulator states that this would offer “a convenient, seamless, and disciplined way of investing in mutual fund units for distributers while encouraging long-term savings and investments.”
Distributors must be registered with the Association of Mutual Funds in India (AMFI) and sell schemes of the respective AMC to qualify for these provisions.
Social Investing
In a move aimed at promoting social impact investing, SEBI suggested allowing investors to contribute a part of their subscription amount or scheme returns to social causes via mutual funds. This approach would alleviate the operational challenges faced by investors when identifying credible non-governmental organizations (NGOs).
The regulator mentioned that contributions could be routed through Zero Coupon Zero Principal instruments issued by not-for-profit organizations registered on the Social Stock Exchange, ensuring a higher degree of transparency.
Donation Framework
To implement the donation framework, SEBI proposed two options: either through dedicated mutual fund schemes or by enabling all existing schemes to offer this capability. AMCs would be required to institute safeguards, including robust Know Your Customer (KYC) checks for both payees and beneficiaries, clear written mandates, auditable electronic fund trails, and compliance with the Prevention of Money Laundering Act (PMLA) norms.
“The aim is to establish a balanced approach that enables ease of investing in legitimate cases while reinforcing strong safeguards against potential misuse,” SEBI remarked.
The public is invited to provide feedback on these proposals until June 10.
Published on May 20, 2026.
