India's SEBI proposes third‑party payment rules for mutual funds

The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing that third‑party payments be allowed in mutual fund investments under defined circumstances. The proposals include allowing employers to make contributions to employee mutual‑fund holdings through payroll deductions and permitting asset‑management companies (AMCs) to pay distributors in mutual‑fund units rather than cash trail commissions. Currently, all payments must come directly from the investor’s bank account via RBI‑authorized aggregators or SEBI‑recognised clearing corporations.

SEBI emphasizes safeguards such as robust KYC for both payer and beneficiary, a written mandate, segregation of funds, and an auditable electronic trail to mitigate money‑laundering risks under the PMLA. The regulator also seeks to enable investors to allocate a portion of subscription amounts or scheme returns to social causes within a transparent framework. Public comments on the proposals are invited until 10 June 2026.