SEBI Proposes Third-Party Payments in Mutual Funds for Specific Scenarios

Draft Circular; Dated: 20.05.2026

The Securities and Exchange Board of India (SEBI) has issued a draft circular proposing to permit third-party payments in Mutual Funds under specified scenarios, subject to adequate safeguards.

The proposal aims to facilitate operational convenience and enable socially beneficial contributions while maintaining regulatory controls and investor protection.

1. Proposal to Permit Third-Party Payments

SEBI has proposed allowing third-party payments for investment in mutual fund units in limited and specified circumstances.

The proposal departs from the existing restrictive approach towards third-party payments by permitting such transactions where appropriate safeguards and transparency measures are maintained.

2. Employer Contributions Through Payroll Deduction

One of the proposed scenarios relates to payments made by an employer on behalf of employees for investment in mutual fund units.

Under the proposal:

• Employers may make payments towards mutual fund investments on behalf of employees;
• Such payments may be routed through payroll deduction mechanisms; and
• Investments would continue to be linked to employee participation and contribution structures.

The proposal seeks to facilitate systematic investing through employer-supported arrangements.

3. Contributions Towards Social Causes Through Mutual Funds

SEBI has also proposed a framework to facilitate contributions or donations towards a social cause through mutual funds.

The proposal is intended to enable participation in socially beneficial initiatives through mutual fund-linked mechanisms while ensuring transparency and appropriate safeguards in fund flows.

4. Safeguards and Regulatory Oversight

The proposed relaxation is subject to adequate safeguards, which are intended to ensure:

• Transparency of payment sources
• Proper identification and traceability of contributors
• Investor protection and compliance safeguards
• Prevention of misuse of third-party payment mechanisms

The safeguards are aimed at balancing flexibility with regulatory oversight.

5. Public Comments Invited

SEBI has invited comments and suggestions from stakeholders on the draft circular.

Comments may be submitted up to June 10, 2026.

6. Objective of the Proposal

The proposal seeks to provide greater operational flexibility in mutual fund investments while supporting employee investing and social impact initiatives.

SEBI aims to balance ease of participation and innovation in mutual fund transactions with adequate safeguards, transparency and regulatory protection.

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