Sebi May Allow Salary In MFs

Investments under the framework would remain voluntary for employees.

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India Inc may be allowed to pay a part of employees' salaries in mutual fund units.

In a consultation paper issued on Wednesday, the Securities and Exchange Board of India (Sebi) proposed permitting third-party payments in MFs in select cases.

Key Points

Sebi has proposed allowing employers to pay a portion of employee salaries through mutual fund investments voluntarily.
Listed and EPFO-registered companies may be permitted to invest in MF schemes on employees' behalf through salary deductions.
Mutual fund distributors could receive commissions partly in MF units instead of traditional cash-based compensation structures.
Sebi also proposed enabling investors to donate mutual fund investments or returns towards verified social causes transparently.

Sebi Proposes MF Salaries

Besides employers, the regulator is also considering allowing MFs to pay commissions to distributors in the form of MF units.

At present, MF investments must be made directly from an investor's own bank account.

Sebi said this requirement was aimed at preventing misuse and ensuring compliance with anti-money-laundering norms.

However, the regulator noted that, based on recommendations from the Mutual Fund Advisory Committee, it plans to allow third-party payments under certain special circumstances.

One of the proposals would enable employers to invest in MF schemes on behalf of employees.

Third-Party Payments Allowed

'The proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees,' Sebi said.

'This mechanism would allow asset management companies (AMCs) to accept consolidated payments for MF investments through salary deduction.'

The facility would be available to listed companies, EPFO-registered firms, and AMCs themselves.

Investments under the framework would remain voluntary for employees.

Distributors May Get MF Units

Sebi has also proposed allowing AMCs to pay commissions to empanelled MF distributors partly in MF units instead of cash.

According to the consultation paper, the move would provide 'a convenient, seamless and disciplined way of investing in MF units' for distributors and 'encourage MF distributors to save and invest for the long term.'

The regulator has proposed several safeguards for third-party payments, including validation of the relationship between the payer and beneficiary, enhanced know your customer (KYC) checks, audit trails, and ensuring that redemption proceeds are credited only to the beneficiary's verified bank account.

MF Donations Framework Proposed

In a separate proposal, Sebi suggested enabling investors to donate a part of their MF investments or returns towards social causes through a regulated framework.

Under the proposal, investors could contribute a specified portion of their subscription amount, dividend, or redemption proceeds towards donations.

Sebi has outlined two possible approaches -- either launching dedicated MF schemes with a social contribution feature or allowing existing schemes to offer such an option.

The donations could be channelled towards zero coupon zero principal (ZCZP) instruments issued by not-for-profit organisations (NPOs) registered on the social stock exchange, or directly to non-government organisations (NGOs) identified in the scheme documents.

Sebi said enabling donations through MFs would reduce the operational burden on investors in identifying credible NGOs independently.

The regulator added that routing contributions through Social Stock Exchange-registered entities would provide "a strong layer of transparency" and assure investors that their money is reaching verified organisations.

The framework would also mandate "strict disclosure requirements, periodic reporting of end use of fund, and explicit and prior consent from the investor."