Sebi Proposes to Allow Third-Party Payments for Mutual Funds in Special Cases
The Securities and Exchange Board of India, or Sebi, has proposed a significant change in how investors can pay for mutual fund investments. Currently, the rules are very strict. Every payment for buying mutual fund units must come directly from the investor’s own bank account. This money must also pass only through payment systems approved by the Reserve Bank of India or clearing corporations recognized by Sebi. This system is designed to prevent fraud and money laundering. However, Sebi now believes that this rule is too rigid for some genuine situations.
Under the existing framework, if an investor wants to put money into a mutual fund, the funds must originate from a bank account that is in the investor’s own name. This means a spouse, parent, or employer cannot directly pay for the investment on behalf of the investor. For many people, this creates a practical problem. For example, a senior citizen may rely on a child to manage finances. Or an employer may want to invest a bonus directly into an employee’s mutual fund account. The current rules block such payments, forcing investors to first transfer money to their own account and then invest. This extra step can be inconvenient and time-consuming.
Sebi’s new proposal aims to relax this rule in certain specific scenarios. The regulator has suggested that third-party payments should be allowed when the investor is a minor, a person with a disability, or a senior citizen who has authorized a family member to handle investments. Another scenario is when an employer makes a contribution to an employee’s mutual fund as part of a salary or bonus structure. In these cases, the payment can come from a third party, such as a parent, guardian, or employer. However, the proposal includes strict safeguards. The third party must have a clear and documented relationship with the investor. The payment must also be routed through the same approved payment channels to ensure security and traceability.
This change is important for several reasons. First, it makes mutual fund investments more accessible. Many families manage money jointly, and this proposal reflects that reality. Second, it reduces the paperwork and hassle for investors who currently have to move money between accounts. Third, it can help increase the overall participation in mutual funds, especially among groups like senior citizens and employees who receive company contributions. For example, if an employer wants to invest a performance bonus into a mutual fund for an employee, the process becomes simpler and faster.
Sebi has invited public comments on this proposal before finalizing the rules. The regulator is expected to consider feedback from investors, asset management companies, and payment service providers. If implemented, this change will mark a shift from the current strict “own account only” policy to a more flexible approach. Investors should watch for the final notification. Once approved, they will need to ensure that any third-party payment is properly documented and follows the new guidelines. This proposal is a clear step towards making mutual fund investments more user-friendly while still maintaining strong checks against misuse.
