SEBI Proposes Gift Card/PPI for Mutual Funds

On March 23, 2026, the Securities and Exchange Board of India (SEBI) released a consultation paper on the introduction of Gift Cards / Gift Prepaid Payment Instruments (PPIs) as a mode for subscription to mutual fund units. The proposal, based on inputs received from the Association of Mutual Funds in India (AMFI), aims to enhance financial inclusion by facilitating the onboarding of new investors into the mutual fund ecosystem.

According to the proposed framework, the purchaser of a Gift PPI can gift it to a recipient, who can claim ownership of such PPI and use it for subscription to mutual fund units, typically through the Asset Management Company’s (AMC) platform or through a distributor. The flow of funds under this transaction will be governed by the guidelines of the Reserve Bank of India (RBI), while the mutual fund subscription and redemption process will remain subject to SEBI regulations, and only authorised entities will be permitted to issue PPIs.

SEBI has proposed several safeguards to ensure compliance and investor protection. The existing norms applicable to e-wallet investments will continue to apply, including KYC compliance, adherence to cut-off timings, prohibition on incentives such as cashback or vouchers, and credit of redemption proceeds only to the bank account of the investor. In addition, the cumulative investment limit through such instruments, along with e-wallet and cash investments, is capped at ₹50,000 per financial year per mutual fund.

Further, as per RBI guidelines, Gift PPIs will be non-reloadable, with a maximum value not exceeding ₹10,000, and will be valid for a minimum period of one year. Cash withdrawals or fund transfers to third parties will not be permitted; however, refunds to the source account may be allowed in accordance with RBI guidelines and with the consent of the PPI holder. KYC details of the purchaser will be maintained by the PPI issuer.

It has also been clarified that Third Party Validation (TPV) will be mandatory. The Registrar and Transfer Agent (RTA) will verify that the PPI holder and the mutual fund folio holder are the same person, in line with the ‘no third-party payment’ norms. Transactions that do not meet this requirement will be rejected.

The proposal further mandates that the Gift PPI must be legally owned by the redeemer prior to investment and that the entire value of the Gift PPI must be utilised for subscription to mutual fund units (subject to applicable statutory levies). If the PPI is not claimed within its validity period, the amount will be refunded to the purchaser’s verified bank account, and AMCs are expected to track and notify holders regarding unclaimed PPIs.

Additionally, the proposal provides flexibility to the redeemer in selecting mutual fund schemes. While the purchaser may indicate a preferred scheme, such indication will not be binding on the redeemer. The redeemer may either invest directly (under the direct plan) or avail the services of a distributor (under the regular plan).

The framework also provides that PPIs shall be funded only through electronic bank transfer or UPI from an Indian bank account. Further, any issuance or redemption-related charges may be borne by the AMC, and distribution and marketing of such PPIs must comply with SEBI’s mutual fund advertisement code, including a prohibition on the use of dark patterns.

SEBI has also invited public comments on various aspects of the proposal, including scheme selection flexibility, distributor involvement, refund mechanisms, and adequacy of safeguards, by April 14, 2026.