India Weighs UPI Fee for Mutual Funds; Investors Face Potential Costs
India's government may introduce a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions for mutual funds. This could increase costs for investors, with the impact varying by investment type and payment method.
New Framework May Add Costs
India's government is considering implementing a Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) transactions. This new framework could apply to mutual fund payments. MDR is a processing fee for digital transactions, typically paid by the merchant.
The government has created an enabling framework, though final rules and applicable transaction categories remain unconfirmed. This move could have implications for mutual fund investors, potentially adding new costs to their investments.
Varying Impact on Investors and Funds
The potential cost for mutual fund investors depends on several factors. Siddharth Maurya, Managing Director at Vibhavangal Anukulkara Pvt Ltd, states the impact hinges on who collects the UPI payment and initially covers the MDR. Shams Tabrej, Co-founder and CEO of Ezeepay, notes MDR is a payment-processing cost, not a fund-management expense.
Direct-plan investors may avoid extra charges if an Asset Management Company (AMC) absorbs the fee. However, investors could face additional fees if the charge passes as a convenience or payment fee. Regular-plan investors, already paying distributor commissions, might see their servicing economics affected.
SIPs and Transaction Thresholds
Protima Dhawan, Director and Unit Head at Anand Rathi Wealth, suggests AMCs or their payment partners may bear costs for direct investments. Intermediaries or their partners might bear costs for broker-assisted investments, depending on arrangements.
Tabrej highlights recurring monthly Systematic Investment Plans (SIPs) could accumulate small MDR charges over a year if passed to investors. The framework might apply MDR to eligible merchant transactions exceeding ₹2,000. This means a ₹2,001 payment could become chargeable, depending on final rules, merchant category, and exemptions, Dhawan adds.
Potential Shift in Payment Methods
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, estimates approximately 45% of new SIPs would see an impact. Lump-sum investments currently show a lower 10% UPI share. If the proposal proceeds, many UPI investments may shift to alternative bank transfers.
Maurya cautions that actual impact varies by MDR structure: whether it is percentage-based, a fixed amount, or tied to a threshold. Dhawan notes investors have other payment options like NEFT, RTGS, and net banking. AMCs with high transaction volumes might absorb small MDRs, while brokers or wealth platforms could eventually recover costs through payment or service fees.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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