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Informist, Wednesday, May 19

--SEBI seeks comments on proposal to permit third party payments in MFs

PNEW DELHI - The Securities and Exchange Board of India Wednesday proposed allowing third-party payments into mutual funds in certain scenarios with adequate safeguards in place. The regulator proposed investment into mutual funds by employers by way of deductions from income of the employee to enable better uptick in social security plans. 

"The proposed scenario acknowledges the established practice of employers offering various benefits and savings avenues to their employees. This mechanism would allow AMCs (asset management companies) to accept consolidated payments for mutual fund investments through salary deduction," SEBI said in a consultation paper, seeking feedback by Jun. 30.

The current regulatory framework mandates that all payments for investments in Mutual Funds must originate directly from the investor's own bank account and be routed exclusively through the Reserve Bank of India-authorised payment aggregators or SEBI-recognized clearing corporations.

The market regulator has also proposed an investor-protected framework to permit an investor to contribute a part of the subscription amount or a scheme’s return, towards a social cause. Enabling donations through mutual funds will eliminate the operational difficulties and the burden on investors to independently identify credible Non-Governmental Organisations, SEBI said. "Further, donations through Zero Coupon Zero Principal instruments by Not for Profit Organisations registered on Social Stock Exchange establishes a strong layer of transparency, thereby providing investors an assurance that their investments are being directed to verfied organisations," it said.

According to SEBI, stringent precautions are necessary to enable these third-party payments. Precautions may include Know-Your-Customer verification of payee and beneficiary, a clear written mandate, and an auditable, non-cash electronic fund trail via segregated accounts with regular reconciliation. The AMCs must also perform due diligence and ensure transparency, guaranteeing beneficiaries full redemption and liquididity. 

Reported by Priyasmita Dutta 

Edited by Akul Nishant Akhoury

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