Capital market regulator SEBI has proposed a change that would allow third parties, like employers or mutual fund companies, to pay for investments on an individual’s behalf.
According to the Securities and Exchange Board of India, the current regulatory framework mandates that all payments for investments in MFs must originate directly from the investor’s own bank account and be routed exclusively through RBI-authorised payment aggregators or SEBI-recognised clearing corporations.
To mitigate the third-party payment risks, asset management companies (AMCs) must ensure compliance with Prevention of Money Laundering Act (PMLA), verify that source bank account belongs to the unit-holder and use payment modes with independent traceability, per current rule.
Further, all payouts are required to be credited to the investors‘ verified bank accounts, thereby ensuring maintenance of a full audit trail.
Requests have been made by the mutual fund industry to relax the extant conditions for third party payments in certain cases such as payment of salaries by employers, payment of commissions by AMCs, etc, with adequate safeguards in place, SEBI said in a consultation paper, on the proposed new norms.
Who are eligible
One of the key proposals would allow employers to invest in MF schemes on behalf of employees through salary deductions. According to the draft paper, the facility would be available to all listed and EPFO registered companies and the AMCs. But only interested employees may opt for such an arrangement and agree for salary deduction for MF schemes of their choice.
“The proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees,” SEBI said.
It added that this mechanism would allow AMCs to accept consolidated payments for mutual fund investments through payroll systems, with employee consent.
EPFO/NPS securities
Currently, employees are indirectly investing in equity markets through EPFO contribution. The EPFO is authorised to invest up to 15 per cent of its fresh accretions into equities through exchange traded funds, tracking Nifty50 and S&P BSE Sensex, as well as specific CPSE ETFs for government disinvestments. Currently, the EPFO has invested over ₹3 lakh crore funds in equities.
Similarly, NPS or National Pension System also invests in market-linked retirement schemes. While it is mandatory for Central government employees (joined from 2004), it can be voluntarily adopted by the corporates for their employees. According to NPS annual report, at the end of 2024-24, it managed ₹14.44 lakh crore.
401(k) equivalent?
This proposal could be a gamechanger for all — investors, mutual funds and the market. Investors stand to benefit, as this will make them disciplined investors over the long term. Beyond its immediate scope, this proposal presents an opportunity to establish in India an ecosystem comparable to the US 401(k) framework.
But there will be a lot of operational challenges, especially what happens if employees discontinue and quit the company. Whether it can be portable like EPFO account, is an important issue which an employee should know before investing. Also, SEBI should come out with clear norms on hassle-free withdrawals.
This will also drive AMCs to launch innovative products targeting different types of investors based on their needs. However, they should not indulge in mis-selling. For the market, these funds will be instrumental in bolstering systemic stability and investor confidence, especially during volatile period like the current one.
Industry should welcome the new proposal and help the market broaden.
Published on May 22, 2026