SEBI Suggests Using Prepaid Instruments for Mutual Fund Investments

The Securities and Exchange Board of India (SEBI) has proposed allowing gift cards and prepaid payment instruments (PPIs) to be used for investing in mutual funds.  

As per the news reports, the proposal, issued through a consultation paper, for expanding investor access and bringing new participants into the mutual fund ecosystem. 

Structure of the Proposal 

Under the draft framework, gift cards or PPIs can be purchased and transferred to recipients, who may use the value to subscribe to mutual fund units.  

These instruments must be funded only through electronic bank transfers or the Unified Payments Interface (UPI) linked to Indian bank accounts. 

Each PPI will have a validity period of 1 year from the date of issuance. Transactions will be routed through regulated channels to maintain traceability. 

Investment Cap and Oversight 

SEBI has proposed a cap of ₹50,000 per investor per financial year for investments made through gift PPIs.  

This limit includes contributions made through e-wallets and cash. Registrar and transfer agents will monitor these transactions on behalf of asset management companies. 

Any transaction exceeding the prescribed threshold will be rejected. The cap is intended to limit exposure while enabling participation at smaller ticket sizes. 

Expanding Use of Prepaid Instruments 

Gift cards and prepaid solutions have traditionally been used in retail purchases and corporate reward programmes. Their use has expanded with the growth of digital payments and structured incentive systems. 

These instruments offer features such as controlled usage, digital tracking, and immediate delivery. The proposed framework extends their application to financial products, allowing conversion into mutual fund investments. 

Financial Inclusion Objective 

The proposal also focuses on improving financial inclusion. Prepaid instruments can provide access to individuals who may not actively use formal banking channels but are part of the digital payments network. 

Such instruments are already used by organisations for targeted disbursements, including benefits and incentives, due to their traceability and restricted usage features. 

Read More: Midcap and Smallcap Mutual Funds See Strong AUM Growth, But Near-Term Risks Persist! 

Conclusion 

The proposal outlines a regulated pathway linking prepaid instruments with mutual fund investments. It introduces a structured mechanism to use gifting formats for financial participation within defined limits and monitored channels. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.   
 
Mutual Fund Investments are subject to market risks, read all the related documents carefully before investing.