From 15 October, UPI transactions carry a 0.02% merchant fee for the first time, according to reports from Capitalmind. However, this fee structure remains free for end users and is absorbed entirely by mutual fund houses. For a typical lakh investment, the fee amounts to approximately ₹24 per transaction, which fund houses pay rather than investors. The new framework covers capital market transactions including payments to stockbrokers, securities dealers, mutual funds, and investment platforms.
Investment platforms face significant cost implications under the new MDR structure. Zerodha's Nithin Kamath highlighted that the current structure doesn't account for the fact that transferring money to a stockbroker doesn't necessarily result in a transaction. Using a hypothetical example, Kamath illustrated how 10,000 customers could each make 50 UPI transfers of ₹2 lakh monthly without executing a single trade, potentially costing the broker around ₹2 crore without generating any business. INDmoney's Ashish Kashyap used a more concrete example, stating that an investment app receiving ₹200 crore daily through UPI for investments would incur ₹4 lakh in MDR at the 0.02% rate, translating to an annual cost of ₹11.52 crore assuming 24 trading days monthly.
SIPs on UPI AutoPay remain exempt from the new fee structure, as reported by Capitalmind. However, the cost may be passed on to investors if fund houses include it in expense ratios instead of absorbing it. For a quarter of a fund's money arriving through UPI, investors could pay approximately ₹2 more annually on a lakh investment. This fee represents a small fraction compared to typical expense ratios.
According to experts in Zee Business, investors are unlikely to face direct additional burden under the new UPI merchant discount rate framework. Kshitij Mahajan, CEO of Complete Circle Wealth, explained that UPI transactions for mutual fund investments can attract a 0.02% charge, but the cost is expected to be paid by the mutual fund company or service provider rather than individual investors. For example, a 0.02% charge on a ₹1 lakh transaction would amount to ₹20, which would not be directly charged to the investor. The new charge applies to lump-sum investments rather than SIP facilities, with mutual fund companies expected to absorb applicable payment-related costs.
Investors have several alternatives to UPI for securities transactions, including net banking, NEFT, RTGS and other banking channels. As reported by Zee Business, investors generally use these channels for larger transfers to brokers, with the UPI limit making it less suitable for large trading and investment transactions. Fee Only Investment Advisors founder Harsh Longa noted that the impact on brokers could be limited because UPI is not the most commonly used payment method for securities transactions. Despite the new framework, mutual fund companies may continue offering UPI as a payment option while absorbing the relatively small transaction cost, as UPI continues to offer convenience for smaller and immediate investment transactions.
