The introduction of a new UPI Merchant Discount Rate (MDR) framework has raised questions among investors about whether they will have to pay extra when using UPI for mutual fund and stock-market transactions.
The key question is who will ultimately absorb the charge — the investor, mutual fund house, broker or another service provider. According to Kshitiz Mahajan, CEO of Complete Circle Wealth, the 0.02 per cent charge applicable to mutual fund and equity-market payments would not be directly paid by individual investors. Harsh Roongta, founder of Fee Only Investment Advisers, said his understanding was that mutual fund companies would absorb the cost.
However, the treatment can vary depending on the type of transaction.
Mutual Fund Investments Through UPI
For lump-sum mutual fund investments made through UPI, the applicable charge is 0.02 per cent, according to Mahajan. At a transaction value of ₹1 lakh, this would work out to ₹20.
Mahajan said the investor would not have to bear this amount and that mutual fund companies would absorb the cost.
He compared it with transaction expenses involved in other payment methods. According to him, mutual fund houses already absorb certain costs associated with payments through debit cards, which can be around ₹10, as well as expenses related to OTM registration.
Mahajan also pointed out that investors have alternatives such as net banking and RTGS for making mutual fund payments.
What Happens to SIP Payments?
The treatment of SIPs is different from lump-sum mutual fund investments. Based on Mahajan’s understanding of the framework, the 0.02 per cent charge does not apply to SIP payments made through UPI.
He said the charge applies to lump-sum investments rather than regular SIP instalments. Therefore, investors should not treat the 0.02 per cent MDR as an additional charge on their recurring SIP payments through UPI, based on this interpretation.
For regular investments, Mahajan also mentioned OTM registration as another option that allows investors to make recurring payments without having to initiate a UPI transaction each time.
UPI Payments to Demat and Trading Accounts
The position is less certain when investors transfer money to a demat or trading account through UPI.
Mahajan said the 0.02 per cent charge would apply to such transactions, but he did not have clarity on whether the demat account provider or custody partner would absorb the cost or pass it on to the customer.
For a ₹1 lakh transaction, the charge would be ₹20, while smaller transactions would attract a proportionately lower amount.
When it comes to stock-market transactions, both Mahajan and Roongta pointed to the relatively limited use of UPI compared with other payment methods. Roongta said he did not have data on the actual use of UPI for broker payments but noted that bank transfers such as NEFT, IMPS and RTGS are generally used.
Mahajan similarly said larger trading and margin-related transactions are typically carried out through net banking or RTGS. Investors involved in trading or F&O may prefer net banking because transaction values can exceed the UPI limit.
IPO Applications and Broker Payments
IPO applications work differently because they use the ASBA mechanism. Mahajan explained that the money is blocked in the investor’s bank account rather than being transferred as a conventional payment through UPI.
As a result, the 0.02 per cent charge discussed for mutual fund and equity-market payments does not apply to IPO applications in the same way.
For brokers, Roongta said the impact is less clear. He explained that money transferred to a broker does not necessarily represent income because a client may deposit funds without executing a trade. The money may subsequently have to be returned to the client after a quarter.
Roongta said he did not have sufficient data to quantify the impact of the new charge on brokers or intraday trading.
Overall, the experts indicated that the effect of the new UPI framework will depend on the type of transaction. For mutual fund lump-sum investments, Mahajan said the fund houses would absorb the charge, while Roongta said his understanding was also that mutual fund companies would bear the cost.
For demat and broker-related payments, the exact treatment remains less clear. Investors can also use alternatives such as net banking, NEFT, IMPS and RTGS, particularly for larger securities-market transactions.