Capital markets regulator Sebi has proposed allowing employers to directly facilitate mutual fund investments for employees through salary deductions, marking a shift in existing mutual fund payment rules. The proposal is part of a Sebi consultation paper that seeks to relax restrictions around "third-party payments" in mutual funds under specific regulated situations.At present, mutual fund investments are generally allowed only when money comes directly from an investor's own bank account.What exactly has Sebi proposed?Sebi has proposed permitting employers to deduct money from employee salaries and invest it into mutual fund schemes selected by employees. "The proposal seeks to permit employers to facilitate mutual fund investments on behalf of employees through salary deductions," the consultation paper said.This would create a structured route for salary-linked mutual fund investing.Why are such payments restricted today?Existing rules prohibit most third-party payments in mutual funds because of concerns around money laundering, fraud and misuse of investor accounts. Sebi said the current framework was introduced as part of anti-money laundering safeguards.However, the regulator noted that the industry had requested limited relaxations in genuine and traceable cases. "The restrictions on third-party payments were intended to address concerns relating to money laundering and fraudulent transactions," the paper said.How will the salary deduction model work?Under the proposed structure, employees would voluntarily opt into the facility and choose mutual fund schemes for investment. Employers would then deduct the selected amount directly from salaries and transfer it to the chosen mutual fund schemes.Sebi clarified that redemption proceeds and dividends would continue to go only into the employee's own bank account."Redemption proceeds and dividend payouts shall be credited only into the bank account of the respective investor," the consultation paper stated.Which employers can offer this facility?Sebi has proposed restricting the facility to listed companies, EPFO-registered establishments, asset management companies. The regulator said these entities already operate under regulated compliance structures, making monitoring easier.Will employees be forced to participate?No. The proposal states that only "interested employees" can opt into such salary-linked investments. The arrangement would remain voluntary.What safeguards has Sebi proposed?Sebi has proposed multiple safeguards before allowing third-party salary payments into mutual funds. These include mandatory KYC verification, validation of relationship between payer and investor, electronic audit trail of transactions, compliance with anti-money laundering norms.The regulator said operational standards would later be framed by Association of Mutual Funds in India in consultation with Sebi.Sebi said the proposed framework involves regulated and identifiable payment flows, unlike anonymous third-party transactions. The regulator also noted that employers already facilitate other salary-linked financial products and deductions.The paper said the proposal could improve ease of investing and widen participation in mutual funds.What other changes has Sebi proposed?Apart from salary-linked investing, Sebi has proposed allowing mutual fund distributors to receive commissions in the form of mutual fund units instead of cash. According to the consultation paper, this could "align distributor interest with investor interest".However, the regulator has also asked whether such a system could create conflicts of interest or increase the risk of mis-selling.Is the proposal final?This is currently only a consultation paper. Sebi has invited public comments before finalising the framework. The regulator may modify the proposals after feedback from industry participants, investors and other stakeholders.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)