Proposing payroll-linked mutual fund payments just like provident funds or pension funds, Sebi has proposed allowing third-party mutual funds payments by an employer or payment of distributor commissions by mutual fund houses on behalf of the investor, provided adequate safeguards are in place.
The regulator said it has received requests from stakeholders to relax the current norms for third-party payments in certain cases such as payment by employers, payment of commissions by fund houses etc.
The regulator has floated a draft framework to permit certain forms of third-party payments in mutual funds, a significant move from the existing regime that requires investments to originate strictly from an investor’s own bank account which must be routed exclusively through RBI-authorised payment aggregators or Sebi-recognised clearing corporations.
After receiving feedback from the industry, Sebi feels that there is a need to review the existing framework for third-party payments in the mutual funds segment by permitting specific, well-defined scenarios where such payments may be allowed without compromising the overarching objectives of investor protection and compliance with the provisions of the Prevention of Money Laundering Act.
“The intent is to strike a balanced approach that facilitates ease of investing in genuine cases while reinforcing robust safeguards against potential misuse,” Sebi said in a consultation paper issued Wednesday.
The consultation paper proposes allowing employers, mutual fund houses, and even social contribution structures to participate in regulated third-party payment mechanisms, while ensuring anti-money laundering safeguards and investor protection norms.
Accordingly, Sebi proposes an employer can pay for its employees’ investments in mutual fund units through payroll deduction.
One of the key proposals is to allow employers to invest in mutual fund schemes on behalf of their employees through salary deductions. According to the draft paper, the facility will be available only to listed companies, EPFO registered companies and asset management companies themselves. Employees would have to explicitly opt in to the arrangement, and the investments would continue to be credited in the employee’s own name.
“The proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees. This mechanism would also allow asset management companies to accept consolidated payments for mutual fund investments through salary deduction,” Sebi said.
Further, the regulator has also suggested allowing fund houses to mutual fund distributors in the form of mutual fund units instead of trail commission. The proposed scenario-- allotting mutual fund units instead of trail commission, as agreed between the fund house and the distributor-- will provide a convenient, seamless and disciplined way for the distributors to invest in mutual fund units and will encourage them to save and invest for the long term, it added.
Additionally, Sebi has also proposed to permit investors to contribute a portion of the subscription amount or a scheme's return toward a social cause. This aims to facilitate investor contributions to social causes through a regulated, transparent and investor-protected framework.
To manage PMLA risks in third-party payments, Sebi has suggested safeguards like robust KYC for both the payee and beneficiary, a clear written mandate, and an auditable, non-cash electronic fund trail via segregated accounts with regular reconciliation. Fund houses must perform due diligence and ensure transparency, guaranteeing beneficiaries full redemption liquidity, Sebi suggested.
The Sebi has sought public comments till June 10 on the proposals.
