The markets regulator has proposed allowing salaried staff to invest in mutual funds via payroll deductions. The automated systematic investment plans would not only keep them away from high-risk F&O bets but also bring stable domestic capital into the stock markets, writes Mrugank Paranjape
l What has the markets regulator proposed?
CONSIDER IT AS your employer setting up a Systematic Investment Plan (SIP) for you on payday, before the funds reach your bank account. According to the Securities and Exchange Board of India’s (Sebi) May 2026 consultation paper, listed companies and employers registered with the Employees Provident Fund Organisation can automatically deduct a portion of an employee’s salary and send it directly to chosen mutual funds, with units credited to their demat account.
The employee selects the fund and amount. The employer deducts this at source on the salary day, along with provident fund and Employees’ State Insurance contributions, just like any other statutory deduction. The investment occurs immediately, preventing impulse or external influence. There’s no need for separate login, reminders, or the risk of skipping due to rent payments or options expiry.
India’s primary investment habit has always been SIP automation, and this concept effectively integrates that automation directly into the payroll process.
l How does this build on the SIP’s success?
THE SIP’S BRILLIANCE lies in removing the need for decision-making as it automates monthly investments, transforming irregular lump-sum contributions into the country’s mutual fund system exceeding Rs 20,000 crore each month.
The payroll scheme takes this concept further: instead of the investor manually starting the SIP, the employer automates it as part of the salary process. Each month, before expenses such as rent, groceries, or F&O margins are met from the salary, a small portion of the salary is automatically invested in a mutual fund.
The wealth of the salaried individual gradually grows, and the habit of saving develops without requiring any willpower. This approach changes the saving culture — not by encouraging people to be better at it, but by making the easier choice the smarter one.
l What made Sebi act now?
THE FIRST STRESS point was the crisis in retail F&O trading. In FY25, roughly 91% of individual equity derivatives traders incurred losses, with net losses up 41% to Rs 1.06 lakh crore. Sebi’s data indicated that traders under 30 accounted for 43% of the F&O trader base by FY24, with many earning less than Rs 5 lakh per year. On the profit side, 96% of proprietary trader gains and 97% of FPI gains were generated via algorithmic trading. Retail traders believed they were in a fair contest, but structurally, that was not the case.
The second key issue was the necessity for stable domestic capital. With FPIs withdrawing, DIIs-supported by SIP inflows that exceeded Rs 20,000 crore per month throughout FY25 and reached Rs 25,926 crore in March 2025 remained the sole consistent buyers. Payroll-based investing can strengthen this foundation and reduce India’s equity market’s reliance on foreign investments.
l What behavioural levers does this proposal pull?
The PROPOSAL TAKES into account core psychological biases in money management.
n Pre-commitment: The money is invested before the trading app opens. You cannot spend what you never received.
n Inertia as an ally: Most people never change a default. Here, the default is investing — not spending, not trading.
n Payslip as scoreboard: Every month, the employee sees growing NAV on their payslip — compounding made visible, not a ledger of losses.
n Removing the decision: It’s no
longer left to “No, I’ll start next month.” The system invests today without asking.
n Identity shift: An investor who watches his fund’s NAV climb every payday begins to see himself as a wealth builder, not a trader chasing the next expiry.
l What must Sebi do to make it work?
SEBI MUST PRIORITISE making redemption as swift as a breaking a fixed deposit (FD). For salaried investors, liquidity is the key trust barrier. Breaking a FD ensures funds are in the account by morning-without forms, delays, or two-day settlements. This quick access is FD’s main competitive edge, not the returns. While mutual fund equity redemptions currently take T+2, in a world where UPI settles instantly, and FDs pay overnight, T+2 creates friction that diminishes confidence and discourages salaried investors.
India transitioned to T+1 settlement for equity exchanges in 2023, with payouts confirmed by 1:30 pm on the next day. Debt funds have already shifted to T+1. Sebi’s initiative to enable asset management companies to borrow against receivables paves the way for T+1 equity redemptions as well. There is no technical reason for equity funds to delay; Sebi should enforce this change. Fast withdrawals via UPI— matching payroll credit speed — are crucial for salaried investors, and this will help mutual funds become as accessible and trustworthy as fixed deposits.
The author is the managing partner at MCQube
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.