Background

Currently, the regulatory framework mandates that all payments for mutual fund investments must originate exclusively from the investor's own bank account. This rule ensures compliance with the Prevention of Money Laundering Act (PMLA) and maintains a clear audit trail. However, based on industry feedback, SEBI is exploring options to relax these norms for certain legitimate scenarios while maintaining strict safeguards.

Proposed Scenarios for Third-Party Payments

The Mutual Fund Advisory Committee (MFAC) has proposed enabling third-party payments in three specific cases:

• Payroll Deductions by Employers: Employers would be allowed to make consolidated payments for mutual fund investments on behalf of their employees through salary deductions. This facility would be available to all listed and EPFO-registered companies, offering employees a seamless way to save.
• Commission Payments to Distributors (MFDs): Asset Management Companies (AMCs) could pay trail commissions to empanelled Mutual Fund Distributors in the form of mutual fund units instead of cash. This is intended to encourage long-term investing among distributors.
• Donations to Social Causes: Investors would be able to mandate a portion of their subscription or redemption payouts to go towards social causes. This could be directed to Non-Governmental Organisations (NGOs) or Not for Profit Organisations (NPOs) registered on the Social Stock Exchange via Zero Coupon Zero Principal (ZCZP) instruments.

Required Safeguards

To prevent money laundering risks and protect investors, AMCs must enforce stringent precautions:

• Robust KYC verification for both the payee and the beneficiary.
• Validation of the relationship between the payee and the beneficiary.
• Maintenance of an auditable, non-cash electronic fund trail via segregated accounts.
• Clear definition of responsibilities for AMCs and RTAs to ensure PMLA compliance and due diligence.

Public Comments Requested

SEBI is balancing the ease of financial transactions with the critical objective of preventing fraudulent activities. Public comments and suggestions regarding these proposals are invited until June 10, 2026.