Mutual Fund SIP Investment: Capital markets regulator Sebi, on May 20, proposed a payroll-linked SIP model for mutual funds, allowing employers to directly facilitate mutual fund investments for employees through salary deductions, a shift in existing mutual fund payment rules.
Market regulator Securities and Exchange Board of India (SEBI) has issued a draft framework proposing to allow limited third-party payments in mutual funds, marking a notable shift from the current rule that mandates investments be made only from the investor’s own bank account.
For those confused about Sebi’s new proposal – a payroll-linked SIP model for mutual funds. Here’s everything you need to know about it.
What is Sebi’s new proposal?
Market regulator Securities and Exchange Board of India (SEBI) has issued a draft framework proposing to allow limited third-party payments in mutual funds, a notable shift from the current rule that mandates investments be made only from the investor’s own bank account.
The consultation paper released on Wednesday, May 20, suggests permitting employers, mutual fund houses, and certain social contribution arrangements to use regulated third-party payment channels, subject to strict anti-money laundering safeguards and investor protection requirements. This would create a structured route for salary-linked mutual fund investing.
Understanding salary deduction process
Under the proposed structure, employees would voluntarily opt into the facility and select mutual fund schemes for investment. Employers would then deduct the chosen amount directly from employees’ salaries and transfer it to the selected mutual fund schemes.
Sebi clarified that redemption proceeds and dividends would continue to go only into the employee’s own bank account.
“Redemption proceeds and dividend payouts shall be credited only into the bank account of the respective investor,” the consultation paper stated.
Which employers can provide this facility?
SEBI said in a paper, “Such a 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 to salary deduction for MF schemes of their choice.”
Is employee participation mandatory?
No. The proposal states that only “interested employees” can opt into such salary-linked investments. The arrangement would remain voluntary.
Safeguards Proposed by SEBI
Market regulator Securities and Exchange Board of India (SEBI) has proposed multiple safeguards before allowing third-party salary payments into mutual funds. These include:
1. Mandatory KYC verification
2. Validation of the relationship between the payer and investor
3. An electronic audit trail of transactions
4. Compliance with anti-money laundering norms.
The regulator said operational standards would later be framed by the Association of Mutual Funds in India in consultation with Sebi.
SEBI stated that the proposed framework would involve regulated and traceable payment flows, unlike anonymous third-party transactions. The regulator also highlighted that employers already facilitate various salary-linked financial products and deductions.
What other changes has Sebi proposed?
Apart from salary-linked investing, Sebi has proposed allowing mutual fund distributors to receive commissions in the form of mutual fund units instead of cash. According to the consultation paper, this could “align distributor interest with investor interest”.
However, the regulator has also asked whether such a system could create conflicts of interest or increase the risk of mis-selling.
Is Sebi’s proposal final?
The proposal is currently at the consultation stage. SEBI has invited public comments before finalising the framework. The regulator may revise the proposals based on feedback from industry participants, investors and other stakeholders.
