The Securities and Exchange Board of India (SEBI) released a draft circular to permit third party payments in mutual funds in certain scenarios.24 The draft seeks to replace the current framework regarding such payments in the Master Circular for Mutual Funds.
Key proposals include:
▪ Employer payment for mutual fund investments: The draft circular allows Asset Management Companies (AMCs) to accept consolidated payment for mutual fund investments through salary deduction. This facility would be available to: (i) all listed and Employees’ Provident Fund Organisation (EPFO) registered companies and (ii) AMCs.
▪ Allotment of mutual fund units in lieu of commission: Currently, AMCs pay a trail commission in cash to the distributor of mutual funds. The draft circular proposes for an option of allotment of mutual funds units in lieu of cash. Only those distributors who are registered with the Association of Mutual Funds of India and selling AMC’s scheme will have this option.
▪ Donations through mutual funds: The draft circular permits investors to contribute a part of the subscription amount or a scheme’s return to NGOs.
▪ Safeguards to be placed by AMCs: In order to prevent risks such as money laundering, the draft proposes measures such as: (i) KYC for both payee and beneficiary, (ii) a clear written mandate, and (iii) an auditable, non-cash electronic fund trail via segregated accounts with regular verification of all the records.
Comments are invited by June 10, 2026.
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