You can invest in mutual funds through your employer. But should you?

Though this has no special tax benefits, it does have a major disciplinary benefit as the money is invested before it hits your bank account, making it impossible for you to end up spending it instead.

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Several asset management companies (AMCs) including Mirae Asset AMC and Bajaj Mutual Fund offer these corporate systematic investment plans (C-SIPs). Ganesh Mohan, CEO of Bajaj AMC, said “Several organisations have already onboarded Empower (the company’s C-SIP), with more in the final stages of activation. The growing interest highlights rising demand among employers for seamless, payroll-linked investment solutions that support long-term financial well-being for their employees.”

How it works

For instance, if an employee earns a salary of ₹1 lakh a month and opts for a ₹5,000 monthly SIP, the employer will deduct that sum from their salary for the SIP and pay them ₹95,000.

The employer/company sends a bulk payment to the AMC periodically with a list of employee names and SIP amounts. Once the AMC receives this list along with the payment, it assigns the mutual fund units to the employees.

“Corporate SIPs offer employees a disciplined, hassle-free way to invest regularly through salary deductions, benefiting from the power of compounding and rupee cost averaging,” said Abhishek Kumar, a registered investment advisor and founder of Sahaj Money.

When employees sell their investments, the money hits their bank account directly. Switching jobs does not affect their investments. The employer simply has to remove that employee’s name from the list it shares with the AMCs.

Employees can access their account through the AMC website or through MF Utilities or MF Central.

How to register

The employee must submit a common application form and KYC details, along with an authorisation to deduct the investment amount from their salary every month. They must then select the mutual fund scheme they wish to invest in and the monthly amount.

The employer needs to submit a third-party declaration form stating that the payment has been made on behalf of the employee, an authorisation letter, and a consolidated cheque in favour of the AMC. The company’s HR department must also send a list with details of employees and SIP amounts. After receiving this, the AMC will process the transaction and allocate the units.

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However, halting a C-SIP isn’t as straightforward as stopping a regular SIP. Vaibhav Shah, head – products, business strategy & international business, Mirae Asset Investment Managers (India), said, “To stop or pause a corporate SIP, the employee needs to submit a written request to their company’s HR department, instructing them to cease deductions from their salary. If the employee wishes to change their mutual fund scheme, they need to submit the necessary corporate SIP form.”

Drawbacks

Experts said reducing flexibility in this way can sometimes work against investors. While an investor can choose to pause/stop an SIP at any time if they’re investing on their own, they would need to inform their HR department in the case of corporate SIPs.

“Since this SIP isn’t connected to online payment methods such as NACH, Internet SIP or UPI Auto Pay – it’s a direct monthly payment deducted from the employee’s monthly salary – there’s no way to start or stop it online,” said Shah of Mirae Asset Investment Managers (India).

Kavitha Menon, RIA and founder of Probitus Wealth, said, “End goals are important, but life also happens. If someone wants to temporarily pause or stop her SIP, it is her prerogative. Corporate SIPs take away flexibility from investors’ hands. Its USP is therefore also its weakest feature.”

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Abhishek Kumar, RIA and founder of Sahaj Money, said investors may not have the choice of all AMCs and schemes through corporate SIPs. He added that corporate SIPs could create a situation in which certain AMCs crowd out the competition. “The AMC tied up with the corporate gains an unfair advantage, potentially leading to a monopoly by accessing investor income directly at the source,” said Kumar. He added, “There’s another concern: what happens if the deduction is made from the employee’s payroll but the employer fails to transfer the amount to the AMC?”

Products like these may benefit investors who have issues with managing money. For all other investors, regular SIPs work best, said Menon.