Widely read:
Anand Kumar
Summary: A new SEBI proposal promises to make investing easier, but the people it's designed to help may already have all the tools they need.
For a quarter of a century now, my wife and I have done something that, strictly on paper, the rules of Indian mutual funds did not quite allow. Every month, a modest sum has gone from our household into an SIP held in the name of the woman who has worked in our home for all those years.
The paperwork was hers. The folio was hers. The money was always, unambiguously, hers. But the impetus, the discipline and all the form-filling were ours.
Back then, it was so difficult for someone like her to open a bank account and get a chequebook that we might have given up had my own brother not been an SBI officer. Twenty-five years on, the result is a nest egg that is enormous by the standards of her peers, most of whom have nothing of the sort. Watching it grow has been one of the more gratifying things we have done with our money.
I mention this because SEBI has just put out a consultation paper that, at first glance, seems to be about precisely this sort of helping hand.
The draft circular proposes relaxing the long-standing bar on third-party payments into mutual funds. In a few carefully defined situations, someone other than the investor would be allowed to route money into a fund on that investor’s behalf. The headline scenario, and the one drawing the most commentary, is employer payroll deduction. A company could deduct a sum from an employee’s salary and invest it directly, much as it already does for PF or NPS.
It is a well-meaning idea, and I am with SEBI’s instinct. But it is aimed at the wrong people.
The employee of a listed or EPFO-registered company, the only sort who could use this, is already the most banked, most digitally literate and most thoroughly chased investor in the country. They already have a salary account, a smartphone, a dozen apps competing for their SIP and an auto-debit mandate that will pull money on a chosen date, whether their employer lifts a finger or not. They do not need their employer standing between them and their fund. The digital plumbing already does everything the payroll route promises, including the much-celebrated ‘discipline’ that commentators keep crediting to salary deduction.
Speaking as someone who employs a 100-odd people and writes about funds, I can also tell you what will happen on the employer’s side. Very little.
A business already wrestling with provident fund, pension, tax deduction, medical cover and in several states, a pile of additional filings, is not going to volunteer for one more piece of discretionary bureaucracy out of sheer benevolence. The measure will be applauded, then sit there largely unused.
It is worth recalling why the third-party bar exists in the first place. It dates from the pre-digital era, when an unscrupulous distributor could take an investor’s cheque made out to a scheme, along with a hand-filled application, discard the form and resubmit the cheque with an application in his own name. The prohibition was meant to stop exactly that. That world has gone, and the rule has, in a sense, outlived the fraud it was built to prevent, which is precisely why a thoughtful relaxation is worth having.
But if SEBI is going to relax it, the relaxation ought to reach the people for whom a trusted hand makes a real difference. Those people are not in the formal sector at all. They are the drivers, the cooks, the cleaners and the household helpers whom millions of Indian families know well and would, given an easy mechanism, gladly assist.
What I would dearly like to see is a provision for small, fully documented, fully traceable third-party SIPs into the informal sector. A way for a family to route a few hundred or a few thousand rupees a month from a worker’s wages straight into a fund held in that worker’s own name, with the very safeguards SEBI rightly cares about designed in from the outset. That is the relaxation worth fighting for, and the one that would change lives we never read about in the personal finance press.
For the ordinary salaried reader, the practical takeaway is simpler still. You need not wait for any of this. The auto-debit SIP already in your hands does the whole job today.
The real prize is in extending that same ease to the many Indians who have, so far, been left entirely outside it.
Also read: Your salary may soon flow straight into a mutual fund
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
