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UPI MDR May Add Costs to Mutual Fund Investments
From 15 October 2026, some people paying for mutual funds through UPI may face a small new charge.
The charge is 0.02% of the transaction, with a maximum of ₹300.
Officially, the merchant, such as a fund platform, is supposed to pay it.
Experts are discussing what happens if platforms pass the cost to investors.
The charge could be taken out of the money being invested, or paid separately.
If it is taken from the investment, slightly less money buys mutual fund units.
The difference in final returns would be small but could grow with larger investments.
The charge is not expected to increase the fund’s expense ratio because it relates to the individual payment method.
A 0.02% Merchant Discount Rate will apply to capital-market UPI transactions from 15 October 2026, capped at ₹300.
The announced framework says merchants should bear the charge, but experts examined how it could affect investors if passed on.
The charge could be deducted from the investment amount or collected separately from the investor.
In a five-year illustration at a 10% annual return, a ₹10,000 investment produced an estimated ₹3 difference between the two methods.
The MDR is expected to be a transaction-level cost rather than part of a mutual fund’s expense ratio.
- Who
- Mutual fund investors using UPI, along with asset management companies, platforms, brokers and payment participants.
- What
- A 0.02% MDR will apply to capital-market transactions, including mutual fund payments, subject to a ₹300 maximum per transaction.
- Where
- On UPI-based capital-market transactions in India.
- When
- From 15 October 2026.
- Why
- The announced framework introduces a merchant-side payment charge, while experts are assessing whether and how it could be passed on to UPI-using investors.
Merchant-Borne Charge
Potential Investor Cost
Who should pay
Merchant-Borne Charge
The announced framework says the merchant should bear the MDR, and the Finance Ministry and National Payments Corporation of India said it should not be passed on to customers.
Potential Investor Cost
Experts discussed the possibility that platforms or brokers could pass the charge to investors who choose UPI, either separately or through existing fees.
Effect on fund expenses
Merchant-Borne Charge
The MDR should remain a transaction-level payment cost and should not be charged to the mutual fund scheme, protecting investors using other payment routes.
Potential Investor Cost
Charging the MDR to scheme assets could affect all investors and would require a permissible basis under Securities and Exchange Board of India expense rules; the announcement alone does not establish that permission.
Treatment of SIPs
Merchant-Borne Charge
A SIP instalment collected through an operational UPI AutoPay mandate should be exempt from MDR.
Potential Investor Cost
A one-time first payment made before the AutoPay mandate becomes operational may attract MDR, so treatment depends on how the first instalment is processed.
Key facts
- MDR rate
- 0.02% per eligible transaction
- Maximum charge
- ₹300 per transaction
- Maximum-rate threshold
- The ₹300 cap is reached on transactions of ₹15 lakh; larger transactions also attract ₹300.
- Effective date
- 15 October 2026
- ₹10,000 illustration
- If deducted from the investment, ₹9,998 is invested; if charged separately, the full ₹10,000 is invested.
- Five-year illustration
- At an assumed 10% annual return, estimated values were ₹16,102 and ₹16,105 respectively.
- Expense ratio
- Experts said the MDR should be treated as a transaction-level cost and should not affect the mutual fund’s expense ratio.
Quotes
Harsh Vardhan Dawar
Founder of Wealth Cafe and a finance professional.
“It will not have any impact on the expense ratio of the Fund as the cost will not be borne at the Fund level as that will impact other investors investing through non-UPI routes.”
livemint.com
“The 0.02% MDR reaches the maximum cap of ₹300 on transactions of ₹15 lakh”
livemint.com
Sources
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