SEBI Proposes Third-party Payments in Mutual Funds: Salary Deductions, Unit Commissions and Social Donations on the Table
Moneylife Digital Team 21 May 2026
Market regulator the Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a regulated framework for third-party payments in mutual funds a departure from the existing rule that requires all MF investments to originate solely from an investor's own bank account.
 
The move follows recommendations from the Mutual Fund Advisory Committee and industry representations seeking limited flexibility in genuine, traceable payment arrangements.
 
Key Proposals at a Glance
 
1. Payroll-linked MF Investing Employers may soon be allowed to deduct a portion of employee salaries and invest it directly into mutual fund schemes chosen by the employee. The facility will be restricted to listed companies, EPFO-registered firms, and AMCs. Participation will be entirely voluntary, and all redemption proceeds and dividends will continue to be credited only to the employee's own bank account.
 
2. Commissions in MF Units SEBI has proposed allowing AMCs to pay trail commissions to empanelled Mutual Fund Distributors (MFDs) in the form of MF units instead of cash. The move aims to align distributor incentives with long-term market performance. However, SEBI has also flagged potential mis-selling risks and sought public feedback on necessary safeguards.
 
3. MF-linked Social Donations Investors may be permitted to donate a portion of their subscription amount, dividends, or redemption proceeds toward social causes — either through Zero Coupon Zero Principal (ZCZP) instruments listed on the Social Stock Exchange or directly to identified NGOs. SEBI has proposed two models: dedicated social contribution MF schemes or a donation feature embedded within existing schemes.
 
Safeguards Proposed
To prevent misuse and ensure PMLA compliance, SEBI has proposed:
  • Mandatory KYC verification for both payer and beneficiary
  • Validation of the payer-investor relationship
  • Electronic audit trail of all transactions
  • Redemption proceeds routed exclusively to verified beneficiary accounts
  • Operational guidelines to be framed by AMFI in consultation with SEBI
 
SEBI has invited public comments on the proposals until 10th June. The framework is not yet final and may be revised based on stakeholder feedback.
 
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