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On May 20, 2026, the Securities and Exchange Board of India (SEBI) launched a consultation on a draft circular enabling third party payments in mutual funds in certain scenarios. The consultation seeks feedback on SEBI's proposed framework to permit third party payment arrangements within the mutual fund sector. This development aims to expand payment flexibility and accessibility for mutual fund investors by allowing payments to be made through intermediaries or alternative payment channels in defined circumstances. The initiative reflects SEBI's broader effort to modernise India's mutual fund infrastructure and streamline transaction processes for market participants. The draft circular outlines the conditions and safeguards under which third party payments would be permitted, addressing investor protection, operational efficiency, and regulatory compliance. The framework is designed to balance innovation in payment mechanisms with the need to maintain robust controls and prevent misuse. This consultation is relevant to mutual fund houses, asset management companies, custodians, and other market infrastructure providers involved in mutual fund distribution and settlement. SEBI invites stakeholders to submit comments on the draft circular through its public comments portal. The consultation period and response deadline are available on SEBI's website. Following the consultation period, SEBI will review submissions and publish its response to comments, after which it will issue the final circular implementing the third party payment framework. **Reference:** Securities and Exchange Board of India. Consultation Paper on Draft Circular for Enabling Third Party Payments in Mutual Funds in Certain Scenarios. May 20, 2026. Available at: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes

The Securities and Exchange Board of India (SEBI) has released a consultation paper and draft circular proposing to enable third-party payments in mutual funds under certain scenarios. The consultation paper proposes: Payroll deductions for investments allowing listed and EPFO-registered companies (including Asset Management Companies themselves) to make consolidated third-party payments for mutual fund investments on behalf of their employees via salary deductions, provided the employee consents. Commission payments to distributors enabling AMCs to pay trail commissions (or parts thereof) to AMFI-registered mutual fund distributors (MFDs) in the form of mutual fund units rather than cash, encouraging long-term investment by the MFDs. Donations through mutual funds seeking feedback on permitting investors to mandate a portion of their subscription, dividend, or redemption payout as a contribution to a social cause, either through Zero Coupon Zero Principal (ZCZP) instruments issued by SSE-registered Not for Profit Organisations (NPOs) or directly to specified Non-Governmental Organisations (NGOs). Safeguards and PMLA compliance mandating that AMCs implement stringent precautions to manage Prevention of Money Laundering Act (PMLA) risks, including robust KYC for both the payee and beneficiary, validating the relationship between them, securing clear written mandates, ensuring an auditable non-cash electronic fund trail, and guaranteeing that all eligible payment proceeds (like dividends) are credited strictly to the beneficiary's account. Public comments on these proposals may be submitted via this link by June 10, 2026.

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India's Securities and Exchange Board of India Launches Consultation on Third Party Payments in Mutual Funds

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Securities and Exchange Board of India of India Launches Consultation on Third Party Payments in Mutual Funds