Right now, the money for your mutual fund investment must come from your own bank account. SEBI is proposing to relax that rule in three specific situations. The proposal is still at the consultation stage, with public comments open until June 10, 2026.
This blog explains what SEBI is proposing, how it could affect everyday investors, and the safeguards being considered before any of it becomes law.
What SEBI is proposing
Under the current rule, every mutual fund payment must come directly from the investor's own verified bank account, through authorised channels, with a full audit trail. This is designed to prevent money laundering.
After requests from the mutual fund industry, SEBI's draft circular (issued May 20, 2026) proposes to allow third-party payments, money paid by someone other than the investor, in three cases:
| Scenario | Who pays | Who receives the units |
| Salary deduction | Employer (on behalf of employee) | The employee |
| Distributor commission | AMC (fund house) | The distributor (MFD) |
| Social donation | Investor's own funds, redirected | An NGO / social cause |
Each is explained below.
1. Employer-funded investing through salary deduction (the big one for investors)
This is the most relevant proposal for salaried investors. An employee could authorise their employer to deduct a chosen amount from their salary and invest it into mutual fund schemes the employee selects.
The draft sets clear conditions:
- The employee must opt in, participation is voluntary.
- The investment is made in the employee's own name.
- Any redemption or dividend must be credited only to the employee's verified bank account.
- The facility would apply to listed and EPFO-registered companies (EPFO is the body that manages the provident fund), and to AMCs for their own staff.
In effect, mutual fund investing could become as automatic as a provident fund deduction, money invested before it reaches your account.
2. Distributor Commissions paid as fund units
SEBI also proposes letting fund houses (AMCs) pay part of a distributor's commission as mutual fund units instead of cash. This would apply only to distributors registered with AMFI who sell AMC's schemes, and the units would go to the distributor directly. The stated aim is to encourage distributors to stay invested for the long term.
3. Donations to social causes through Mutual Funds
SEBI is considering letting investors redirect part of their subscription, redemption, dividend, or returns toward a social cause. This would work through Zero Coupon Zero Principal (ZCZP) instruments, a donation tool used by non-profits registered on the Social Stock Exchange, or directly to an NGO named in the scheme's documents.
Two models are proposed: a dedicated social-cause mutual fund scheme (Option A), or a donation facility built into existing schemes (Option B). The intent is to let investors give without having to separately find and verify a credible NGO.
What are the Benefits for Investors?
If implemented with proper checks, the proposal could make regular investing easier and more disciplined:
- Investing directly from salary removes a manual step and reduces payment friction.
- It helps employees who tend to forget or delay their SIPs (Systematic Investment Plans).
- It opens the door to workplace-led financial wellness programs.
- The donation option lets investors combine investing with giving.
It does not, however, remove the need to choose the right fund. Convenience is not the same as suitability.
What are the Risks to watch out for?
SEBI itself flags conflict-of-interest concerns in its consultation questions. Investors should be aware of these:
- An employer might steer employees toward schemes run by its own group company, AMC. SEBI has specifically asked whether this should be restricted.
- Employees could feel pressured to participate in a workplace scheme they don't fully understand.
- Paying distributors in fund units could influence which funds they recommend, raising the risk of mis-selling.
- Donation-linked products need strong transparency on where the money actually goes.
- Investor consent must be genuine, not a checkbox formality.
The takeaway: convenience should not come at the cost of independent choice.
The Safeguards SEBI wants in place
The proposal does not allow open permission for anyone to pay for anyone's investment. The draft requires several checks before any third-party payment is allowed:
- KYC verification of both the payer and the beneficiary.
- A clear written mandate from the investor.
- A non-cash, electronic, auditable money trail through segregated accounts.
- Validation of the relationship between the payer and the investor.
- Redemption and dividend are credited only to the investor's verified bank account.
- Due diligence by the AMC and registrar (RTA), with full PMLA (anti-money-laundering) compliance.
AMFI would issue detailed rules in consultation with SEBI, and the final circular would take effect 30 days after it is issued.
The Bottom line
SEBI's draft proposes a controlled relaxation of mutual fund payment rules, most notably letting employers invest on employees' behalf through salary deduction. For investors, the potential gain is convenience and discipline; the risk is subtle pressure or conflicted advice. Nothing changes yet: the proposal is open for public comments until June 10, 2026, and any final rules would come with KYC, consent, and traceability requirements built in.