MDR on UPI: Impact on mutual fund investors decoded

The introduction of a 0.02% merchant discount rate (MDR) on select UPI transactions will impact certain mutual fund and broking-related payments. This article decodes the implications for mutual fund investors.

Charges on UPI transactions will start from October 15, affecting one-time mutual fund investments made through UPI, debt-market payments via UPI, and UPI payments for topping up brokerage wallets, with a maximum charge of Rs.300.

Mutual fund investors primarily use UPI for Systematic Investment Plans (SIPs), where recurring mandates are exempt from the charge. However, one-time mutual fund investments made through UPI will attract the 0.02% MDR.

For fund houses, frequent UPI transactions by individual investors could lead to higher costs. For instance, investing Rs.1 lakh monthly in an overnight or liquid fund using UPI would incur a 0.02% charge each time, amounting to approximately 0.29% annually. Some fund houses might encourage the use of alternative payment methods like net banking or NEFT/RTGS to mitigate the impact.

Brokers, particularly discount brokers handling high-value transactions and those offering zero brokerage, are likely to be most affected. Brokers may face additional costs without a corresponding revenue increase, especially when traders or investors top up their broking wallets using UPI without executing trades.

Clients of brokers might indirectly bear some of these costs through higher charges or by discouraging UPI transfers. Industry experts warn that if every UPI transfer incurs an additional cost, fund houses may struggle to absorb these expenses indefinitely.