Sebi Proposes Salary-Based Mutual Fund Investments to Boost Participation

Enhancing Mutual Fund Participation

The Securities and Exchange Board of India (Sebi) is set to introduce a new initiative aimed at increasing the penetration of Mutual Funds (MFs). The proposal includes allowing a portion of employees' salaries to be invested in mutual fund units. In a recent consultation paper, Sebi suggested that third-party payments for MFs could be permitted under specific conditions, following recommendations from the Mutual Fund Advisory Committee.

One of the key features of this proposal is that it would enable employers to invest in mutual fund schemes on behalf of their employees. According to Sebi, this approach would allow asset management companies (AMCs) to process consolidated payments for mutual fund investments via salary deductions. This facility would be accessible to listed companies, firms registered with the EPFO, and the AMCs themselves. Importantly, participation in this investment framework would remain optional for employees.

The consultation paper emphasizes that this initiative would create a more convenient and structured method for distributors to invest in mutual fund units, promoting long-term savings and investments. Sebi acknowledged the common practice of employers providing savings and wealth-building products through payroll systems.

Facilitating Donations through Mutual Funds

Another significant proposal from Sebi pertains to donations. The regulator has suggested a framework that would allow investors to donate a portion of their mutual fund investments or returns to social causes. Investors could choose to contribute a designated percentage of their subscription amount, dividends, or redemption proceeds for charitable purposes. Sebi has proposed two potential methods: launching dedicated mutual fund schemes with a social contribution feature or enabling existing schemes to include this option.

Under this proposal, donations could be directed towards zero coupon zero principal (ZCZP) instruments issued by not-for-profit organizations (NPOs) registered on the social stock exchange or directly to non-governmental organizations (NGOs) specified in the scheme documentation.