Gift cards for mutual funds? Sebi plans new route to invest using prepaid instruments

Capital markets regulator 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, a move aimed at improving financial inclusion and bringing new investors into the mutual fund ecosystem. The proposal, released in a consultation paper, seeks to enable investors to gift mutual fund investments through regulated prepaid instruments instead of only using traditional banking channels.

Under the proposal, a person will be able to purchase a Gift PPI or gift card, which can then be transferred to another individual. The recipient can use this prepaid instrument to subscribe to units of a mutual fund, subject to certain limits and regulatory safeguards. Sebi said the initiative is intended to make mutual fund investing more accessible, especially for first-time investors who may not have existing investment accounts.

According to the regulator, the prepaid instruments used for mutual fund investments must be funded only through electronic bank transfer or UPI from an Indian bank account, ensuring traceability of funds and compliance with anti-money laundering rules. These gift instruments will have a validity period of one year from the date of issuance, after which they cannot be used for investment.

To prevent misuse, Sebi has proposed a cap of ₹50,000 per investor per financial year for investments made using gift PPIs. Registrar and Transfer Agents (RTAs), acting on behalf of asset management companies (AMCs), will track investments made through gift cards, e-wallets, and cash to ensure the limit is not breached.

If the total investment through such instruments crosses the prescribed limit, the transaction will be rejected, and the amount will be returned to the issuer’s escrow account. This mechanism is aimed at ensuring that prepaid instruments are used only for small-ticket investments and not for large-scale fund transfers.

Gift cards and prepaid payment instruments are already widely used in retail purchases, online shopping, and digital payments. Their adoption has grown rapidly due to convenience, instant delivery, and enhanced security features. Sebi believes extending this facility to mutual funds could help introduce investing to a wider audience, including young investors, students, and individuals who may not yet be comfortable with traditional investment platforms.

The proposal follows a recommendation from the Association of Mutual Funds in India (AMFI), which suggested allowing gift PPIs as a way to encourage new investor participation in mutual funds.

Prepaid Payment Instruments include digital wallets, prepaid cards, and vouchers that store money in advance and can be used for payments or transfers without directly linking every transaction to a bank account.

Sebi has invited public comments on the proposal until April 14, after which it will take a final decision on whether to allow gift cards and prepaid instruments as a new route for mutual fund investments.