Employers May Soon Be Able To Make Mutual Fund Payments For Employees Through Salary Deductions

The Securities and Exchange Board of India (SEBI) on Wednesday proposed allowing employers to make mutual fund payments on behalf of employees through salary deductions, in a significant easing of existing rules that currently require investments to be made only from an investor's own bank account.

If approved, the facility would be available to employees of listed companies, EPFO-registered companies and asset management companies who voluntarily opt for it and choose the mutual fund schemes they wish to invest in. The proposal would allow employers to make consolidated payments on behalf of such employees.

SEBI said the current framework was designed to prevent risks linked to third-party payments and ensure compliance with anti-money laundering laws, but the mutual fund industry had sought relaxation in certain scenarios where safeguards could be built in.

Apart from the payroll investment proposal, SEBI has also suggested allowing mutual fund companies to pay trail commissions, fully or partly, to empanelled distributors in the form of mutual fund units. The regulator said this could encourage long-term investing among distributors.

In another proposal, SEBI has sought comments on allowing investors to contribute towards social causes through mutual funds by earmarking part of their investment amount, redemption proceeds or dividends towards eligible non-profit organisations through regulated channels, including the Social Stock Exchange.

To guard against misuse, SEBI has proposed safeguards including verification of the relationship between the person making the payment and the beneficiary, strict know-your-customer checks, due diligence requirements and clear audit trails for fund flows.

The regulator said detailed operational norms may be worked out by the Association of Mutual Funds in India in consultation with SEBI. Public comments on the consultation paper have been invited till June 10.