New UPI MDR Explained: Impact on mutual funds, brokers & investors
The implementation of a new 0.02% merchant discount rate will influence certain UPI transactions, including one-time contributions to mutual funds and topping up broker wallets. Notably, recurring SIPs using UPI AutoPay will remain exempt from this fee. Discount brokerage firms may see a rise in operational costs, which could lead to indirect cost implications for their clients.
Mumbai: The upcoming 0.02% merchant discount rate (MDR) on select UPI transactions will impact specific mutual fund and broking-related payments. This article examines which sectors will be most and least affected. What fees will be charged on UPI transactions? The 0.02% MDR fee will apply to one-time mutual fund investments through UPI, debt-market payments via UPI, and UPI top-ups for broker wallets, with a cap of ₹300.
Transactions over ₹15 lakh will incur a flat fee of ₹300. Who uses UPI in capital market-linked payments? Investors utilize UPI for mutual fund and stock market investments. Mutual fund subscribers often set up UPI mandates for recurring SIP payments, while some utilize UPI for occasional lump-sum purchases. Stockbrokers transfer funds to brokerage accounts via UPI instead of net banking.
How are mutual fund investors affected by the MDR? The 0.02% UPI MDR will likely not impact auto-recurring SIPs, as these are exempt. One-time mutual fund investments made via UPI will attract the 0.02% MDR. Industry experts predict the impact will be minimal, with funds absorbing the cost rather than passing it to investors. What will it cost fund houses?
Fund houses may incur higher expenses if individual investors frequently use UPI for transactions. For example, if an investor deposits ₹1 lakh into an overnight or liquid fund monthly and withdraws it at month-end to pay regular bills, using UPI for both deposits and withdrawals will result in a 0.02% charge with each transaction, totaling nearly 0.29% after accounting for GST.
Some fund houses may incentivize investors to employ alternative payment methods like net banking or NEFT/RTGS. How will stock brokers be impacted? All brokerage firms will be subject to the MDR rules, but non-bank brokers, particularly discount brokers with high transaction volumes and those offering zero brokerage, are likely to be the most affected.
Brokers face additional costs even when traders or investors top up their brokerage wallets via UPI without executing trades. Brokers may even see their revenue drop while incurring the extra charges. What does this mean for broker clients? The introduction of this fee could lead brokers to indirectly pass some of these costs on to clients, either by raising charges or discouraging UPI transfers.
Nithin Kamath, CEO of Zerodha, expressed concerns on X, stating that if every UPI transfer incurs an additional cost, regardless of whether the customer actually trades, it is uncertain how they will absorb this indefinitely without impacting their profit margins.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
