Most working Indians set a reminder every month. Check the bank balance. Make sure the SIP goes through. Hope the mandate does not fail. It is a small routine, but it is also a quiet source of anxiety for millions of salaried investors who want to stay consistent but sometimes cannot.
SEBI, India’s market regulator, may have just decided to fix that.
In a consultation paper released this week, the Securities and Exchange Board of India has proposed allowing third-party payments in mutual funds in select cases. This is a meaningful departure from the existing rule that requires every mutual fund investment to come directly from the investor’s own bank account.
The proposal covers three distinct scenarios, and each one carries real consequences for ordinary investors, mutual fund distributors, and the broader financial ecosystem in India.
SEBI’s Proposal for Third-Party Payments in Mutual Funds: Why It Matters Now
For years, the mutual fund industry has quietly requested some flexibility around third-party payment rules. SEBI has acknowledged in its consultation paper that formal requests were made by the industry to relax conditions in specific cases, such as salary payment by employers and commission payment by AMCs, with adequate safeguards in place.
The timing is significant. India’s mutual fund industry crossed the Rs 65 lakh crore mark in assets under management earlier this year. Systematic Investment Plans have become a household term. Yet a large chunk of salaried professionals in smaller cities still find it difficult to set up and sustain a SIP through their own bank account. This proposal attempts to reach precisely those people.
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The Payroll SIP: Your Employer Could Soon Invest on Your Behalf
The centrepiece of the SEBI proposal is the payroll-linked SIP structure. Under this plan, employers, including listed companies, EPFO-registered firms, and asset management companies, would be permitted to deduct a chosen amount from an employee’s salary and invest it directly into a mutual fund scheme of that employee’s choosing.
The employee would opt in voluntarily. The scheme selection would remain entirely in the hands of the investor. The employer simply acts as the payment channel, much like how they currently handle provident fund deductions or National Pension System contributions.
SEBI has described this arrangement as a convenient, seamless and disciplined way of investing in mutual fund units for the employee.
The appeal is easy to understand. When money moves automatically before it reaches your spending account, the temptation to skip or delay an investment disappears. This is the same psychological principle that makes PF contributions so effective as a long-term wealth builder. Applying it to mutual funds could bring a new generation of consistent investors into the market.
For companies, this also opens the door to offering richer, more meaningful employee benefit packages. A company that helps its employees build long-term wealth is likely to be seen as a more thoughtful employer, especially by younger professionals who think seriously about financial security.
What Could Go Wrong and What Investors Should Watch
No financial proposal is without its complications. The most immediate concern is accountability. When your employer deducts your PF contribution, that money is protected by a strict statutory framework. Mutual funds are market-linked and carry inherent risk. If the scheme underperforms, the question of who bears moral responsibility becomes complicated.
SEBI’s proposal does place scheme selection firmly with the employee, which is an important safeguard. But what happens when an employee resigns, is retrenched, or switches jobs? Will the SIP continue independently through a redirected bank mandate, or will it lapse? These are questions the final regulation will need to answer clearly.
Data privacy is another consideration. Employers will effectively know which mutual fund schemes their employees are investing in. How that information is stored, used, and protected will need careful attention in the final framework.
Mutual Fund Distributors to Receive Commission in Units, Not Cash
The second proposal shifts the conversation to how mutual fund distributors, known as MFDs, are compensated. Currently, AMCs pay trail commissions to empanelled distributors in cash. SEBI is now proposing that AMCs be allowed to pay these commissions in the form of mutual fund units instead.
SEBI’s reasoning is clear. A distributor whose personal wealth grows alongside the schemes they recommend has a stronger, more genuine reason to prioritise good long-term advice over short-term commissions. Receiving units rather than cash ties the distributor’s own financial future to the quality of the funds they sell.
For investors, this could be quietly transformative. One of the persistent criticisms of the mutual fund distribution system in India is that some distributors push higher commission schemes over better-performing ones. Replacing cash commissions with unit-based compensation could shift that incentive structure in a healthier direction.
The concern, however, is practical. Smaller distributors who rely on commission cash flows to cover their business expenses may find this transition difficult. Not every MFD operates with enough financial cushion to absorb a shift from liquid cash income to locked-in mutual fund units. The final regulation will need to address whether this is mandatory or optional and whether there is a minimum threshold below which cash payment continues.
Donating Through Your Mutual Fund: A Quiet Revolution in Purpose-Driven Investing
Perhaps the most emotionally resonant part of the proposal is the donation framework. SEBI has suggested creating a structure that allows investors to contribute a portion of their subscription amount or a part of their scheme’s returns toward a social cause.
Two models have been proposed. One involves dedicated mutual fund schemes built entirely around channelling investor money to charitable purposes. The other allows existing schemes to incorporate a donation facility so that an investor can choose to direct a slice of their gains toward a cause they care about.
This brings purpose-driven investing within reach of the everyday retail investor in India, not just large institutions or high-net-worth individuals. For someone who has always wanted to give back but did not know where to begin, seeing a donation line item alongside their returns could be a genuinely moving experience.
The tax treatment of such donations, the eligibility criteria for beneficiary organisations, and the transparency mechanisms are all still undefined. But the intent behind the idea is unmistakably positive.
Third-Party Payments in Mutual Funds: What Happens Next
The consultation paper is open for public feedback, which means the final rules could look quite different once industry bodies, AMCs, distributors, and retail investors submit their responses. SEBI has historically taken stakeholder input seriously and revised proposals meaningfully before notification.
The direction, however, is clear. SEBI wants mutual fund investing to become more automatic, more embedded in everyday financial life, and more aligned with long-term wealth building for every Indian. If you are a salaried professional who has ever struggled to keep a SIP going, this proposal was written with you in mind.
Disclaimer:
This article is written for informational and educational purposes only. It does not constitute financial, investment or legal advice. The proposals mentioned are part of a SEBI consultation paper and have not yet been enacted as regulations. Readers are advised to consult a registered financial advisor before making any investment decisions. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.
Dr. Bidyut Barun Sarmah, with 22+ years of experience in print, electronic, and digital media, holds an MA and PhD in Mass Communication and Journalism. He has worked with AIR, Doordarshan, and the Publication Division under the Ministry of Information and Broadcasting. A published author and researcher, Dr. Sarmah writes extensively in both Assamese and English. He was also awarded a prestigious fellowship by the Ministry of Culture, Government of India, for his study on journalistic literature—an achievement that highlights his depth of scholarship and contribution to media studies. At Nest of News, he leads the editorial team and contributes across diverse topics.
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