The Securities and Exchange Board of India (Sebi) has floated a proposal allowing employers to deduct a portion of employee salaries and invest it directly into mutual fund units on their behalf.
Swarup Mohanty, chief executive officer at Mirae Asset Investment Managers, said, "What this can potentially do is encourage people to gradually convert a portion of their income into investments. Organizations can run internal campaigns to educate employees on how setting aside even a small part of their compensation in investment form can build long-term wealth."
The behavioural logic behind the proposal is strong.
Vishal Dhawan, founder and chief executive of Plan Ahead Wealth Advisors, pointed to what he calls “behavioural leakage” — the gap between salary credit and actual investment.
"That time window is where a lot of behavioural leakage happens — the money gets diverted towards spending rather than savings," said Dhawan.
"This proposal addresses that issue by moving the investment decision upstream, before the money reaches the spending stage."
Opt-in model
The facility would be available only to employees of listed companies and establishments registered with the Employees' Provident Fund Organisation (EPFO).
Participation would remain voluntary.
Only employees who explicitly opt in and consent to salary deductions can be enrolled, and employees would choose the mutual fund scheme themselves.
Any dividend or redemption proceeds must be credited solely to the employee-beneficiary’s verified bank account.
The entire payment trail must remain electronic, non-cash and fully auditable.
"Many employees, especially younger individuals, often feel they can do better in terms of long-term wealth creation by using market-linked instruments," said Dhawan.
"The challenge is that once the money reaches their bank account, it often does not get invested as intended and instead gets spent."
Industry view
According to Dhirendra Kumar, chief executive officer and founder of Value Research, “For years, a small rule kept employers out of mutual funds. They could not pay on behalf of their employees because third-party payments were not allowed. Sebi has now fixed that."
"It opens the door to something Indian salaried employees have never really had: a workplace mutual fund channel. Whether companies actually use it is another matter. But it will be conveniently possible now.”
For the mutual fund industry, the proposal could also accelerate onboarding of first-time investors.
Amol Joshi, founder of Plan Rupee Investment Services, noted that salaried individuals often discover mutual funds only after first using bank fixed deposits and other traditional products.
"What this proposal can do is significantly accelerate that journey," said Joshi.
"It gives new investors earlier and more direct exposure to mutual funds instead of making it a product they discover much later in their financial lifecycle."
Key takeaways
The proposal could help investors build stronger saving discipline by directing part of their salary into mutual funds even before the money reaches their bank account.
However, the final guidelines may provide greater clarity on whether investors — especially first-time participants — will also be able to seek assistance from advisors or distributors while selecting suitable mutual fund schemes.