The proposed fees on UPI transactions could take a significant toll on the mutual fund (MF) industry and wealth management business, as they would increase operational costs and squeeze already thin profit margins.
The government has recently proposed levying a nominal merchant discount rate (MDR) on a limited set of UPI merchant transactions above a certain threshold and has assured that consumers will be exempt from these charges.
However, mutual funds (MFs) and online mutual fund distributors (MFDs) are perturbed by the government’s decision and are seeking an exemption for investment transactions from any UPI-related charges.
The charges, if levied on MFDs, would be detrimental to both MFs and distributors, as they could undermine efforts to bring new investors from smaller cities into the financial ecosystem, said the CEO of a leading online investment platform.
Typically, app-based and platform-based MFDs operate on a margin of around 0.75 per cent, and an MDR of 0.25-0.30 per cent could erode nearly a third of those margins, he said. Ultimately, the charges are likely to be passed on to investors, he added.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said that small SIPs are increasingly being made through UPI, and this segment, which accounts for around 45 per cent of new SIPs, could be adversely affected.
As far as lump-sum mutual fund investments are concerned, UPI’s share remains relatively low at about 10 per cent. If the proposal is implemented, investors may shift from UPI-based transactions to traditional banking channels, he added.
Feroze Azeez, Joint CEO of Anand Rathi Wealth, said that when an investor puts money into a mutual fund through a direct platform using UPI, the charges include stamp duty of 0.005 per cent, which works out to just Rs 5 on a Rs 1 lakh investment, and there are no brokerage charges or separate fees levied by direct platforms.
At an MDR of 0.3 per cent, a ₹1 lakh investment would attract a cost of ₹300, compared with just ₹5 in stamp duty today. For SIP investors, the impact is likely to remain limited because each instalment is a relatively small transaction, he said.
Whether platforms and MFs eventually pass on any part of this cost to investors will depend on how they choose to structure their pricing, said Azeez.
Anuj Kumar, Managing Director of CAMS, said that while the final regulatory framework is still awaited, it is clear that the evolving MDR regime could result in additional costs for certain categories of distributors.
However, the changes will ultimately strengthen the UPI ecosystem and foster greater participation in the mutual fund industry, with more investors embracing digital finance, he said.
Published on August 10, 2026