Investing through SIPs has become one of the most popular ways for retail investors to participate in mutual funds, but challenges such as missed payments, operational hassles, and emotional reactions during market volatility continue to affect investor behaviour. The market regulator, Securities and Exchange Board of India (SEBI) on Wednesday proposed a framework that could allow salaried employees to invest in mutual funds directly through salary deductions.

Under the proposal, employees would be able to voluntarily opt for SIP deductions from their salary, similar to contributions made towards EPF or NPS. Sebi has proposed permitting employers to deduct money from employee salaries and invest it into mutual fund schemes selected by employees. “The proposal seeks to permit employers to facilitate mutual fund investments on behalf of employees through salary deductions,” the consultation paper said.

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Will investing be easy for first time investors?

For many new investors, the biggest hurdle is not willingness to invest but navigating operational processes such as KYC, mandate setup, bank linking, and remembering SIP dates.

Expert Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance shared with ETMutualFunds that salary-linked SIPs can significantly simplify this process for first-time investors as a common challenge for newcomers is operational inertia, including setting up mandates, tracking deadlines, and maintaining sufficient bank balances.

“Seamlessly mapping SIPs to payroll would make investing similar to EPF contributions. This approach could increase mutual fund participation among salaried individuals, especially younger employees beginning their financial journey. However, the biggest challenge I foresee is helping first-time employees choose a mutual fund that aligns with their goals, time horizon, and risk appetite,” he said.
Minocha also said that even those with financial knowledge often struggle to choose the right mutual fund, with more than 2500 options across 50+ AMCs and 40+ categories. There will be a need for handholding, or else the investments can backfire if they do not understand the inherent risk. If employees get an initial bad experience in this industry, it will be difficult to get them back.
Suranjana Borthakur, Head of Distribution & Strategic Alliances at Mirae Asset Investment Managers, shared with ETMutualFunds that it has a genuine chance to and the reasoning is straightforward and the single biggest barrier for a first-time mutual fund investor isn’t awareness or even willingness; it’s the activation energy required to open a folio, complete KYC, set up a mandate, and make that first investment. Each of those steps is a dropout point.
“Payroll SIPs collapse that journey significantly. The employer handles the deduction, the AMC handles the allotment, and the employee simply opts in. That is structurally similar to how most Indians encountered their first systematic savings product through EPF, where the default was participation rather than opt-in. Behavioural research consistently shows that defaults drive adoption far more effectively than education campaigns,” Suranjana said.

Suranjana further said that FY26 already demonstrated that disciplined, systematic investing works at scale SIPs held firm through a volatile year and crossed Rs 32,000 crore a month. Payroll SIPs could extend that discipline to the next cohort of investors who are salaried, financially capable, but not yet engaged with the mutual fund ecosystem. The simplification is real, and for first-time investors specifically, it could be the most consequential change in distribution in years.

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Can this proposal reduce SIP stoppage ratios?

One of the biggest concerns for the mutual fund industry has been rising SIP stoppages, especially during periods of market volatility when investors panic and discontinue investments.

The SIP stoppage ratio is the number of discontinued SIPs compared to the number of new registered SIPs. If this ratio crosses 100% then it indicates that more mutual fund SIPs are being stopped than the ones started. However, one must keep in mind that stoppage ratio also includes those SIPs that have expired. Besides, investors may have simply switched from one SIP to another as part of their portfolio reshuffle.

Experts believe salary-linked investing may help address this issue by creating an automated and less emotionally driven investment process.

Suranjana said potentially yes and the mechanism is worth understanding clearly. SIP stoppages during volatile periods are rarely a considered investment decision; they are most often a friction response. An investor sees a negative return, feels uncertain, logs into their app, and cancels. The path of least resistance leads to stoppage.

Payroll SIPs automatically deduct investments before salary is received, similar to EPF contributions, which may help investors stay disciplined and reduce impulsive SIP stoppages during volatile markets. However, the impact on overall stoppage ratios may be gradual as adoption is expected to scale up slowly over time, she further said.

Minocha said that this setup can likely reduce SIP stoppage ratios, particularly during market volatility and direct salary deductions make investors less likely to pause SIPs in response to short-term market fluctuations.

Automated and disciplined investing has proven effective in fostering long-term wealth creation. However, ongoing investor education is essential so employees understand market volatility and avoid reacting to every downturn, Minocha further said.

Can payroll-linked SIPs boost monthly SIP inflows?

India’s SIP inflows have already crossed record levels over the last year. Monthly mutual fund SIP inflows declined to Rs 31,115 crore in April compared to a record high of Rs 32,087 crore seen in March, a 3% month-on-month drop.

Experts believe salary-linked investing could create an entirely new channel for steady and sticky retail flows. Minocha said over time, the impact on monthly SIP inflows could be significant. India’s large salaried population already contributes regularly to EPF and NPS and even a small percentage adopting payroll-linked SIPs would create a steady monthly flow of funds into mutual funds.

He further said that more importantly, this could expand participation beyond metro areas and attract first-time investors to the financial ecosystem in a disciplined manner.

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Suranjana said the potential is meaningful, though the near-term impact should be viewed realistically rather than extrapolated too aggressively, India has approximately 6 crore EPFO-registered employees across listed and large corporates the initial eligible universe under this proposal and even modest penetration within that base could add materially to monthly SIP flows over a 3–5 year horizon

She further said that payroll SIPs would add an institutionally facilitated channel on top of that, with structurally lower dropout risk. If 10% of eligible employees eventually participate with an average SIP of Rs 3,000 per month, that alone represents an incremental Rs 18,000 crore annually a conservative but illustrative estimate. “The larger impact, however, may not be in the numbers themselves but in the quality of flows stickier, more consistent, and less correlated with market sentiment which would strengthen the overall stability of the SIP book over time.”

Will employees have flexibility to pause or stop SIP deductions?

A key concern around salary-linked investing is whether employees would retain full control over their investments and will employees be forced to take this deduction? According to the Sebi consultation paper, no employees will not be forced to participate. The proposal states that only “interested employees” can opt into such salary-linked investments. The arrangement would remain voluntary.

Suranjana said flexibility and voluntary participation are foundational to making this proposal work well and the draft circular’s framing is appropriately clear on this, the proposal explicitly states that only interested employees may opt for such an arrangement and must actively agree to salary deduction for MF schemes of their choice and this is an opt-in structure, not a mandate.

“On modification and exit flexibility the framework will need clear operational guidelines from AMFI, particularly around how quickly employees can pause or stop deductions, and how that instruction flows from the employee to the employer to the AMC.” Ensuring that exit is as frictionless as entry is as important as the onboarding design itself. Investors who feel locked in tend to become dissatisfied investors and for a first-time investor, a bad early experience with the product can set back engagement for years, she further said.

To this Minocha said according to Sebi’s proposal, employee participation will remain fully voluntary. Employees can opt in, select their preferred scheme, and should have the flexibility to adjust, pause, or stop SIP deductions as needed.

This flexibility is important, as personal financial situations can change over time. Additionally, keeping investments in the employee’s name provides an important investor-friendly safety net and added reassurance, Minocha further said.

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Can salary-linked SIPs become as popular as EPF or NPS?

Many employees make monthly investments in EPF or NPS. The EPF contribution is deducted from the salary whereas NPS contribution is made by the employee. Experts believe payroll-linked mutual fund investing has the potential to become mainstream over time, although it may evolve differently from retirement-focused products like EPF and NPS.

Minocha said that in the long term, salary-linked SIP investing could become mainstream, though it may not initially reach EPF levels since EPF is mandatory and SIPs are voluntary.

As financial awareness and equity participation grow, payroll-linked SIPs could become a popular long-term wealth creation tool in India. However, experts caution that proper investor education and flexibility will be crucial, as a one-size-fits-all approach may not suit every investor’s risk profile and financial goals, he further said

Borthakur pointed out that unlike EPF or NPS, mutual funds offer greater flexibility, liquidity, and investment choice. “For younger salaried investors saving for goals like buying a house, children’s education, or long-term wealth creation, payroll SIPs may actually become a more relevant product,” she said.

She added that while reaching EPF-scale adoption may take time, payroll-linked SIPs could eventually become a natural complement to existing retirement and savings products for salaried Indians.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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