Listen to this article Click here to playSEBI has issued a consultation paper in which it has proposed allowing fund houses to pay trail commission in the form of mutual fund units along with the cash.
However, SEBI has flagged possible mis-selling and conflict-of-interest risks if AMCs pay commissions in the units of their own schemes.
The consultation paper has also sought feedback on whether similar structures should be extended to other corporate entities paying commissions to dealers or distributors in mutual fund units instead of cash.
Deduction from pay roll towards MF investmentsThe consultation paper seeks to allow employers to invest in mutual fund schemes on behalf of employees through salary deductions.
Donations through mutual fund unitsSEBI has additionally proposed enabling investors to contribute a part of their subscription amount or scheme returns towards social causes through mutual fund structures.
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SEBI has issued a consultation paper in which it has proposed allowing fund houses to pay trail commission in the form of mutual fund units along with the cash.
According to SEBI, such a framework can encourage disciplined long-term investing among MFDs while simplifying investment processes. The paper says that the MF units can be allotted only to the distributor himself or herself and the facility would be restricted to distributors registered with AMFI and empaneled with the respective AMC.
However, SEBI has flagged possible mis-selling and conflict-of-interest risks if AMCs pay commissions in the units of their own schemes. To resolve this, the regulator has specifically invited comments on safeguards that may be necessary to address such concerns.
The consultation paper has also sought feedback on whether similar structures should be extended to other corporate entities paying commissions to dealers or distributors in mutual fund units instead of cash.
Deduction from pay roll towards MF investments
The consultation paper seeks to allow employers to invest in mutual fund schemes on behalf of employees through salary deductions. It highlights that the move is in sync with the existing practice of companies offering savings and investment-linked employee benefits.
As per the paper, the AMC will be allowed to accept consolidated payments from employers towards employee investments in mutual funds. But this facility would be available only to listed companies, EPFO-registered firms and AMCs themselves.
Additionally, the participation in this framework will be voluntary for the employees, and they will have to explicitly opt in for salary deductions into schemes of their choice.
In addition to that, citing the conflict of interest, SEBI has also sought public comments on whether employers should be barred from facilitating investments into schemes of AMCs belonging to their own group entities.
Donations through mutual fund units
SEBI has additionally proposed enabling investors to contribute a part of their subscription amount or scheme returns towards social causes through mutual fund structures.
According to the regulator, the framework could help investors donate through a more transparent and regulated mechanism while reducing the burden of independently identifying credible NGOs.
The proposal also leverages Zero Coupon Zero Principal (ZCZP) instruments issued by not-for-profit organizations registered on the Social Stock Exchange (SSE). ZCZP is a special fundraising instrument used by non-profit organizations on the Social Stock Exchange. Zero Coupon means that the investors/donors do not earn any interest or returns and zero Principal means that the original amount invested is also not repaid. So, unlike a bond or debenture, this is essentially a regulated donation instrument, not an investment product.
For this, SEBI has proposed two alternative frameworks:
A dedicated mutual fund scheme allowing investors to earmark a portion of dividend or redemption proceeds towards donations
Allowing all existing schemes to offer an optional donation facility linked to subscriptions or redemption proceeds
However, SEBI has also proposed that the AMCs will still be required to ensure disclosure standards, investor consent, periodic end-use reporting and compliance with PMLA norms.
Proposed safeguards
To manage risks associated with third-party payments, SEBI has proposed a series of safeguards for AMCs and RTAs. These include validation of the relationship between the payee and beneficiary, robust KYC checks for all parties involved, clear written mandates, auditable electronic fund trails, segregated accounts and periodic reconciliation mechanisms.
The regulator has also clarified that all redemption proceeds, dividends and payouts under this structure will continue to be credited only to the beneficiary investor’s verified bank account.
The consultation paper further noted that detailed operational guidelines would subsequently be framed by AMFI in consultation with SEBI, while the public comments on the proposals can be submitted till June 10, 2026 using this link.
