New Delhi: A new Securities and Exchange Board of India (SEBI) proposal could enable contributions, routed through mutual funds, to certain NGOs listed on the social stock exchange, and also pave the way for employers making mutual fund investments on behalf of employees through payroll deductions.
The proposal forms a part of a consultation paper, which aims to relax restrictions on “third party payments” in mutual funds in certain scenarios, released last week. SEBI has invited comments and suggestions on the proposal by 10 June.
Currently, the regulatory framework mandates that all payments for investments in mutual funds must originate directly for the investor’s own bank account. These payments are to be routed exclusively through RBI-authorised payment aggregators or SEBI-recognised clearing corporations. This is done to ensure such investment instruments do not become tools facilitating money laundering or terror financing. The proposal permits investors to contribute to a social cause through a part of the subscription amount of the mutual fund or the scheme’s return. It says that enabling donations through mutual funds will “eliminate the operational difficulties and burden on investors to independently identify credible non-governmental organisations (NGOs)”.Additionally, it also proposes a mechanism that would allow employers to make consolidated mutual fund investments on behalf of employees. The paper says that the proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees.The employees would have the option to opt for such an arrangement and agree for salary deduction for mutual fund schemes of their choice. Any payments through the mutual funds, including dividend, will only go to the employee’s account.Varuna Bhanrale, Partner at law firm Trilegal, said the proposal for employers to deduct mutual fund investments from employees’ payroll “is a welcome step as it creates a systematic savings mechanism (similar to EPF), and could lead to an increase in the number of retail investors in the mutual funds market”.While Bhanrale termed the proposal a positive move overall, she cautioned that its success will depend on practical guardrails imposed by the SEBI.“Additionally, any detailed regulations on this issue must seek to address potential contentious areas such as consequences of non-compliance or wrongdoings by third parties who are expected to invest on behalf of employees and MF distributors,” she told ThePrint.Delhi-based lawyer Deepak Joshi explained that the proposal for payroll deduction for mutual fund investments mirrors the existing statutory systematic deduction model for EPF, NPS, and group insurance. “This proposal has the possibility of expanding MF penetration to non-metro, digitally not so adept employees who rely on employer supported financial products,” he added.
