The Securities and Exchange Board of India (SEBI) has unveiled a significant draft framework proposing sweeping changes to mutual fund investment regulations. These reforms aim to simplify systematic investing for salaried employees and introduce new mechanisms for distributor commissions and charitable donations.
Payroll-Linked Mutual Fund SIPs Proposed
One of the most impactful proposals is the introduction of a payroll-linked Systematic Investment Plan (SIP) facility. This would enable employees to authorize their employers to deduct a chosen portion of their salary for regular investment into mutual fund schemes. This model mirrors existing contributions to Provident Fund (PF) and National Pension System (NPS), potentially making mutual fund investments more accessible and structured for millions of salaried individuals.
SEBI specifies that this facility would be available to employees of listed companies, firms registered with the Employees' Provident Fund Organisation (EPFO), and Asset Management Companies (AMCs). The regulator is actively seeking public feedback on whether companies should be restricted from directing employees towards schemes managed by their own group AMCs to prevent potential conflicts of interest.
Mutual Fund Unit-Based Commissions for Distributors
Another key proposal involves allowing AMCs to compensate mutual fund distributors not just with cash, but also through mutual fund units. SEBI believes this approach could foster a more disciplined, long-term investment mindset among distributors. However, concerns regarding potential mis-selling risks — where distributors might favor schemes offering higher unit-linked commissions — have been raised. SEBI has invited stakeholders to provide views on necessary safeguards to mitigate such risks.
Donation Options via Mutual Funds
The draft framework also introduces a mechanism for investors to donate a portion of their mutual fund investments or returns to social causes. These donations could be channeled through Zero Coupon Zero Principal (ZCZP) instruments issued by not-for-profit organizations listed on the Social Stock Exchange, or directly to selected Non-Governmental Organizations (NGOs). This initiative aims to streamline the process for investors seeking credible avenues for charitable contributions.
Robust Safeguards to Remain Intact
Despite the proposed relaxation of certain third-party payment restrictions, SEBI has emphasized that stringent anti-money laundering (AML) safeguards will remain firmly in place. These measures include mandatory Know Your Customer (KYC) verification, thorough relationship checks between the investor and the payer, comprehensive transaction tracking, and the assurance that all redemption and dividend proceeds will continue to be credited exclusively to verified investor bank accounts.
Public comments on this comprehensive consultation paper are invited until June 10, 2026, allowing stakeholders ample opportunity to contribute to the finalization of these significant regulatory changes.