UPI MDR explained: Will mutual fund SIPs and lumpsum investments be affected?

UPI offers mutual fund investors a quick and convenient way to make lump-sum investments and set up SIP mandates. Under SEBI’s validated UPI framework, investors can make instant payments using a UPI ID or QR code, with payments for investments subject to a daily limit of up to Rs 5 lakh, depending on the bank or payment application.

UPI enables 24x7 payments and quick fund transfers, helping investors meet applicable NAV cut-off times. It also avoids repeated bank-detail entry and net-banking, while cheques require units to be allotted only after funds are realised.

UPI is in focus after a 0.02% merchant discount rate (MDR) was introduced on select transactions. While UPI AutoPay SIPs are exempt, one-time mutual fund investments through UPI will attract the charge.

The impact on mutual fund investors is expected to be limited. Fund houses are likely to absorb the one-time cost rather than pass it on to investors, given the relatively small charge involved.

UPI transaction limits can restrict large mutual fund investments. With a daily limit of up to Rs 5 lakh, depending on the bank or app, investors may need net banking, NEFT or RTGS for higher-value investments.