UPI MDR explained for investors: How will new charges impact your mutual fund SIPs and stock investments?

Starting October 15, selected UPI payments above Rs 2,000 will attract a Merchant Discount Rate (MDR). But that does not mean every UPI transaction above Rs 2,000 will suddenly become chargeable. Recurring payments made through UPI AutoPay and mandates will be treated differently, while mutual funds and other capital-market transactions will fall under a separate, lower MDR rate.

The key point, however, is that the charge applies only to specified person-to-merchant (P2M) transactions. Customers themselves will not be charged MDR. That has left investors and other UPI users with a simple question: will their mutual fund SIPs and stock investments get impacted?

What do new UPI MDR rules state for stock market investors?

The new framework makes an important distinction between regular UPI payments and recurring transactions.


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For mutual fund investors, this distinction is particularly important. Investors who have already set up a recurring mutual fund SIP through UPI AutoPay can continue with their scheduled payments without the prescribed MDR being applied to the AutoPay transaction.

Nithin Kamath on new UPI MDR charges

Zerodha Founder Nithin Kamath says MDR on UPI was probably inevitable at some point, especially given how widespread UPI adoption has become. It could also lead to more competition, instead of just three apps accounting for more than 95% of the market.

That being said, there are some use cases, like investing and broking, where the proposed MDR structure doesn’t really make sense. The problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction.

“As brokers, we can’t force a customer to trade after transferring money. And if we can’t pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue,” he said in a post on X.

Zerodha currently doesn’t charge brokerage on equity delivery trades because the economics allow it to offer them for free. “But if every UPI transfer starts carrying an additional cost, irrespective of whether the customer actually trades, I don’t see how we can absorb this indefinitely.”

“I think having an MDR is okay. It still doesn’t solve the problem of customers transferring money without transacting, but something like 0.02% with a cap of ₹5 or ₹10 per transaction seems much more reasonable for broking, instead of a cap as high as ₹300.”

In other words, the introduction of MDR does not by itself mean that an existing SIP running through UPI AutoPay will suddenly attract an additional transaction charge.

Automated recurring standing instructions, known as UPI Mandates or AutoPay, do not carry prescribed MDR transaction charges. This means payments set up through automated recurring transfers for monthly utility bills, OTT streaming subscriptions, all recurring investments and other such recurring payments will not attract any prescribed MDR charge for the transaction.

But there’s a twist

While recurring payments through UPI AutoPay do not carry a prescribed MDR, capital-market transactions have their own separate MDR structure.

The Merchant Discount Rate for capital-market transactions, including payments towards Mutual Funds, Securities, Stockbrokers and Dealers, has been set at a nominal 0.02% of the transaction value, with a maximum cap of Rs 300. According to the NPCI’s 10-page FAQ, the fee is lower than standard commercial transaction rates to encourage retail participation in formal financial markets.

The impact becomes clearer with an example. A Rs 50,000 payment towards an eligible capital-market transaction would attract an MDR of Rs 10 at the 0.02% rate. For larger transactions, the charge will be capped at Rs 300.

This separate MDR tier explicitly covers regulated entities operating within capital markets, including Asset Management Companies (Mutual Funds), SEBI-registered stockbrokers, securities dealers and investment platforms.

It applies to fund transfers made through UPI for equity buying, debt-market investments, mutual fund purchases and broker wallet top-ups. By creating a separate category for these transactions, capital-market transfers are kept distinct from routine retail purchases and general service payments.

What are the newly-implemented MDR charges?

The government has announced the first-ever Merchant Discount Rate on select UPI transactions above Rs 2,000.

The National Payments Corporation of India (NPCI) on Tuesday announced that the government will introduce MDR on some Person-to-Merchant (P2M) UPI transactions from October 15 onwards. Merchants will pay 0.4% on transactions above Rs 2,000, while the maximum fee that can be levied will be Rs 300 for payments of Rs 75,000 or more.

The crucial point for consumers is that they will not be charged for making UPI payments. Person-to-Person (P2P) transfers will also remain free. Small merchants classified under the P2PM framework will continue to be protected from MDR. This includes vendors receiving up to Rs 1 lakh a month through UPI QR codes.

For most everyday UPI users, another important threshold is Rs 2,000. Transactions worth up to Rs 2,000 will continue to carry zero charges and account for more than 95% of UPI’s P2M transaction volume, according to the FAQ released by the government.

The NPCI has also clarified that the MDR will be borne by merchants and cannot be passed on to customers. This means consumers will continue to pay the listed price when using UPI, without any separate transaction or platform fee being imposed by UPI apps.

So, while the new framework introduces a cost for certain merchants and transactions, it does not translate into a blanket charge on consumers for using UPI.

Why RBI supports MDR charges?

The Reserve Bank of India (RBI) has backed the introduction of Merchant Discount Rate on large-value UPI transactions, saying the move will help strengthen the long-term sustainability of India’s digital payments ecosystem.

In a post on X, the central bank said the move would enable UPI to continue scaling, innovating and serving consumers and businesses across the country.

Read more: UPI MDR seen as sustenance fee, not windfall; small merchants remain shielded

UPI has grown increasingly popular over nearly seven years, helped by the ability to complete transactions quickly without paying additional charges. The government has, however, repeatedly clarified that UPI will remain free for citizens, while person-to-person transactions will continue without charges.

The debate around MDR is ultimately about who bears the cost of maintaining and expanding the digital-payment infrastructure.

RBI Governor Sanjay Malhotra, while discussing these costs in August, summed up the issue by saying, “Someone has to pay the cost”. He stressed that the RBI wants digital payments to remain accessible, affordable and safe, but also sustainable.

For UPI users, therefore, the new MDR framework does not mean that every payment above Rs 2,000 will become more expensive. Recurring payments made through UPI AutoPay or mandates do not carry prescribed MDR charges, while eligible capital-market transactions have a separate MDR of 0.02%, capped at Rs 300. For specified P2M transactions, the MDR will be borne by merchants rather than consumers.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)