SEBI proposed the salary deduction route in May and closed comments in June, yet the final rule has still not appeared.
Money already leaves most salaried Indians’ pay before they ever see it. Provident fund contributions go out every month, and for many people that is the only long-term saving they do. Now the markets regulator wants a second automatic line on the payslip. A SEBI salary deduction would send that money into mutual funds.
What the Rule Says Today
At present, money invested in a mutual fund has to come from the investor’s own bank account. It must travel through a payment aggregator that the RBI has authorised, or a clearing corporation that SEBI recognises.
That requirement sits in clause 17.4 of the Master Circular for Mutual Funds, dated 20 March 2026. It exists to satisfy the Prevention of Money Laundering Act, and to keep a trail of every payment. Money coming back out, including dividends, can go only to the investor’s verified account.
The Three Exceptions in the SEBI Salary Deduction Paper
SEBI issued a draft circular on 20 May 2026. It proposes relaxing that rule in three situations.
First comes the salary route. An employer could take an agreed sum from an employee’s pay and send it to a fund scheme the employee has chosen. The facility would cover listed companies, EPFO-registered companies and fund houses themselves. Employees would have to opt in.
Second, fund houses could pay part of a distributor’s commission in units rather than cash. Third, investors could direct part of their money to a social cause, through non-profits listed on the Social Stock Exchange.
The Questions SEBI Asked About Its Own Proposal
The paper does not only ask whether the changes are welcome. It also puts two risks to the public.
On the salary route, SEBI asked whether an employer should be barred from sending staff money into its own group’s fund houses. If not, it asked what safeguards would be needed.
On commissions, it asked whether paying distributors in units of the schemes they sell could create a conflict of interest, and so lead to mis-selling.
Where the Proposal Stands Now
Comments closed on 10 June 2026. Since then no final circular has appeared, and the draft still carries a blank date. Once a final version arrives, it takes effect 30 days later, with detailed guidelines from AMFI.
The Wise Take
Automatic deductions work because they remove the decision. That is why provident fund balances grow even for people who never think about them. Applying the same design to mutual funds carries one difference worth holding on to. A provident fund balance does not fall when markets fall, though a mutual fund investment can. SEBI’s paper spends more space on safeguards than on benefits. It also asks openly whether employers may route staff money into their own group’s schemes. Until a final circular answers that, a SEBI salary deduction remains a direction of travel rather than a rule.
