For decades, salaried employees in India have built retirement savings through mandatory deductions such as the Employees’ Provident Fund (EPF). The money gets invested before it reaches the employee’s bank account, creating a disciplined savings habit almost by default.
Now, a new proposal from the Securities and Exchange Board of India (SEBI) could bring a similar concept to mutual fund investing.
SEBI has proposed a Payroll-Linked SIP framework that would allow employers to deduct a pre-agreed amount directly from an employee’s salary and invest it into mutual fund schemes chosen by the employee. The idea is simple: make investing as automatic as saving for retirement.
If implemented, the proposal could potentially remove one of the biggest hurdles in investing — inconsistency.
What exactly is being proposed?
Under the consultation paper, employers would be allowed to facilitate mutual fund investments through salary deductions and transfer the money directly to Asset Management Companies (AMCs).
The framework would function much like an SIP, but instead of the money being debited from the employee’s bank account every month, it would be deducted directly from the payroll before salary is credited.
Importantly, employees would continue to retain control over key decisions. They would be able to choose their preferred mutual fund schemes and decide how much they want to invest.
Returns, dividends and redemption proceeds would continue to be credited directly to the investor’s own bank account rather than passing through the employer.
The proposal also seeks a limited exemption from existing third-party payment restrictions. Currently, SEBI regulations generally require mutual fund investments to come directly from an investor’s own bank account to reduce risks related to fraud and money laundering. The new framework proposes a regulated exception specifically for employer-facilitated investments.
How would payroll-linked investing work?
According to Amitabh Lara, Executive Director, Anand Rathi Wealth Limited, the process is expected to be largely automated once an employee opts in.
“In recent days, SEBI has proposed a payroll–linked SIP investing facility, which allows employers to facilitate mutual fund investments through payroll deductions. It marks a shift from the current rule, which requires investments to be made only from an investor’s own bank account. Under the proposal, employees can opt into the facility at their own discretion and authorize salary deductions for mutual fund investments. Once enrolled, contributions would be deducted automatically every month, similar to a SIP, without requiring approval each month.”
This means employees would not have to remember SIP dates, maintain separate mandates or worry about missing monthly investments due to insufficient bank balances.
Why could this be a significant change?
Financial experts believe the biggest advantage of payroll-linked SIPs may not be convenience alone, but behavioural discipline.
Many investors start SIPs with good intentions but pause, skip or stop contributions due to short-term expenses or market volatility. By moving investments closer to the salary credit process, the proposal could help investors stay committed to long-term goals.
Vaibhav Laddha, CEO, Grip Invest, believes the model has the potential to replicate the success that EPF achieved in retirement savings.
“Salary-linked SIPs have the potential to do for wealth creation what EPF did for retirement savings—make investing automatic, disciplined and accessible. The biggest challenge for most investors is not choosing the right product but investing consistently. By linking investments to salary credits, participation becomes less dependent on monthly decisions and more driven by habit.”
He further points out that the concept could eventually extend beyond traditional mutual funds.
“As the SIP ecosystem evolves beyond mutual funds, platforms like Grip are enabling systematic investments in fixed-income instruments such as bonds as well. This broadening of SIP-linked asset classes could help investors build more balanced portfolios across growth and income-generating assets. Over time, salary-linked investing can make long-term wealth creation a default financial behaviour rather than an exception for India’s salaried workforce.”
Will employees be free to choose their own funds?
One concern that naturally arises is whether employers would decide where employees’ money gets invested.
Based on SEBI’s consultation paper, that does not appear to be the case.
Lara explains that investor choice remains central to the proposal.
“As per the SEBI proposal draft, it indicates that employees can invest in mutual fund schemes of their choice rather than being restricted to employer-sponsored funds. However, the final operational framework is yet to be announced by SEBI & AMFI, whether employers will provide access to all mutual fund schemes or offer a curated list through their payroll platforms.”
In other words, while the broad principle of investor choice is clear, some operational details are still awaiting final guidelines.
Good news for young professionals
Industry participants see payroll-linked SIPs as particularly beneficial for first-time investors and young professionals who are just beginning their wealth-creation journey.
A. Balasubramanian, MD and CEO, Aditya Birla Sun Life AMC, says the framework could help deepen investing habits across the country.
“SEBI’s proposal to enable payroll-linked SIPs under a regulated third-party payment framework can become an important step towards strengthening disciplined investing habits and expanding retail participation in financial markets. By integrating investing seamlessly into monthly cash flows, the framework can encourage long-term wealth creation through automation and convenience. This is a very exciting development for working professionals, especially those starting out and in inculcating a habit of investing early on during their prime earning years. AMCs such as ours would be keen to act as enablers with the right tech architecture and governance frameworks as and when this is officiated.”
The proposal could also complement India’s growing SIP culture, which has seen steady participation from retail investors over the past few years.
What happens if you switch jobs?
Unlike EPF accounts, which involve transfer procedures when changing employers, mutual fund investments remain in the investor’s name.
That means a job switch is unlikely to affect ownership of the investments.
Balasubramanian notes: “Importantly, the proposal remains entirely voluntary and preserves investor choice, with employees continuing to invest in schemes aligned to their own financial goals and risk appetite. Since the investments remain in the investor’s own folio, job changes would not impact ownership of units, while investors would continue to have the flexibility to pause, modify or discontinue contributions based on their financial requirements.”
Lara shares a similar view. “SEBI’s consultation paper is yet to finanlize the operational framework of pay-roll linked SIPs. However, since the mutual fund units are held in the employee’s name, the investments would continue to remain in the employee’s folio even if payroll deductions stop after leaving the organization. Moreover, we are expecting payroll-linked SIPs to function as like similarly to regular SIPs, offering investors flexibility to pause, stop, increase, decrease, or modify contributions with full of ease rather than like a traditional retirement-linked savings like EPF.”
This flexibility could emerge as one of the key differences between payroll-linked SIPs and retirement-focused products such as EPF.
Are there safeguards for investors?
The proposal also attempts to address concerns around investor protection.
According to Balasubramanian, the framework includes multiple checks and controls.
“The framework also incorporates appropriate safeguards around KYC, audit trails and payment verification, which are important from an investor protection standpoint.”
Such safeguards are particularly important because the model involves an employer facilitating investments on behalf of employees.
The bigger picture
If approved, payroll-linked SIPs could represent an important shift in how salaried Indians approach investing. The proposal combines the discipline of salary deductions with the flexibility and growth potential of mutual funds.
For employees, it could mean investing before spending. For the mutual fund industry, it could bring millions of salaried workers into a more structured investing habit.
Whether payroll-linked SIPs become as popular as EPF remains to be seen. But by making investing automatic, simple and integrated with monthly salaries, the proposal could move wealth creation from an occasional financial decision to a regular monthly habit.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
