SEBI proposes allowing payroll deductions for mutual fund investments

SEBI has proposed allowing employers to offer mutual fund investments to employees via payroll deductions. The move aims to ease investing for genuine cases while maintaining safeguards against money laundering and misuse under PMLA compliance.

Proposal for Payroll-Based Mutual Fund Investments

Securities and Exchange Board of India (SEBI) has proposed allowing employers to make consolidated mutual fund investments on behalf of employees through payroll deductions, as part of a broader move to relax third-party payment norms in certain cases while retaining safeguards against money laundering and misuse.

In a consultation paper, the market regulator said the proposal is aimed at balancing "ease of investing in genuine cases" with compliance under the Prevention of Money Laundering Act (PMLA). "The proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees. This mechanism would allow AMCs to accept consolidated payments for mutual fund investments through salary deduction," the consultation paper said.

Under the proposal, the facility would be available to "all listed and EPFO registered companies and the AMCs themselves," while participation would remain voluntary for employees.

According to the regulator, "only interested employees may opt for such an arrangement and agree for salary deduction for MF schemes of their choice."

At present, SEBI rules mandate that all payments for investments in mutual funds originate directly from the investor's own bank account and be routed only through RBI-authorised payment aggregators or SEBI-recognised clearing corporations. The regulator said representations had been received from the mutual fund industry seeking relaxation in third-party payment norms in specific scenarios, including salary payments by employers and commission payouts by asset management companies (AMCs).

Commissions for Distributors in Mutual Fund Units

Apart from payroll-based investments, SEBI has also proposed allowing AMCs to pay commissions to empanelled mutual fund distributors in the form of mutual fund units instead of cash. The consultation paper noted that such an arrangement "shall provide a convenient, seamless and disciplined way of investing in MF units for the MFD and encourages the MFDs to save and invest for the long term."

Safeguards and Public Consultation

SEBI has proposed several safeguards for enabling third-party payments. These include validation of the relationship between the payee and beneficiary, robust KYC verification, compliance with PMLA provisions, and ensuring that dividend or redemption proceeds are credited only to the beneficiary's verified bank account.

"In order to manage PMLA risks in third-party payments, stringent precautions are necessary," the paper stated, adding that safeguards may include "a clear written mandate, and an auditable, non-cash electronic fund trail via segregated accounts with regular reconciliation."

The regulator has also sought public comments on whether employers should be restricted from facilitating investments into schemes of AMCs belonging to their own group companies, and what safeguards may be needed to avoid conflicts of interest. Public comments on the proposals can be submitted till June 10, 2026.

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