Unified Payments Interface (UPI) has made it easier for Indians to invest, pay bills and transfer money. However, changes to the UPI Merchant Discount Rate, or MDR, have raised questions among retail investors.
Will SIPs become more expensive? Will brokers charge for adding money to trading accounts? Could buying ETFs or opening fixed deposits through UPI attract additional charges?
The answer depends on how the payment is made, who receives it and how the transaction is classified.
Under the new framework, certain capital-market transactions, including mutual funds and securities, will attract a concessional MDR of 0.02%, subject to a cap of ₹300 per transaction. However, this does not mean that investors will automatically have to pay an additional UPI charge.
MDR is a fee paid within the payments ecosystem. It is not a tax collected by the government or NPCI. The charge is generally borne by the payment-receiving business.
What is changing under the new UPI MDR framework?
The framework is scheduled to take effect from October 15, 2026. It distinguishes between person-to-person payments, merchant payments and certain categories of transactions.
| Type of UPI payment | MDR treatment |
| Person-to-person payments | No MDR |
| Merchant payments up to ₹2,000 | No MDR |
| Specified merchant payments above ₹2,000 | 0.4%, subject to applicable conditions |
| Essential services such as railways, telecom, insurance and fuel | Flat ₹5 for specified transactions above ₹2,000 |
| Capital-market transactions, including mutual funds and securities | 0.02%, capped at ₹300 |
The government has also clarified that customers should not be charged MDR separately. Banks have been advised not to allow merchants to pass on the charge to customers, while UPI apps cannot impose platform fees or hidden charges.
This means the direct impact on investors will depend more on the payment route and the business handling the transaction than on the investment product itself.
Existing SIPs through UPI AutoPay should remain unaffected
For investors running monthly SIPs through UPI AutoPay or recurring mandates, there should be no change.
Sanjiv Bajaj, Joint Chairman and Managing Director of BajajCapital, said recurring mandates have been kept outside the new MDR structure. Therefore, investors using platforms such as Groww, Coin by Zerodha and ET Money should continue to see their authorised SIP amount and payment frequency remain unchanged.
Mukesh Kumawat, Executive Director at Anand Rathi Wealth, gave a simple example. If an investor has a ₹5,000 monthly SIP through UPI AutoPay, the automated debit remains exempt from MDR.
The same applies to SIPs registered directly with an asset management company or through other recurring payment arrangements.
The important distinction is between an automated recurring payment and a one-time manual UPI payment.
A monthly SIP of ₹10,000 through AutoPay would remain exempt. But if the same investor separately makes a ₹10,000 lump-sum mutual fund investment through a manual UPI payment, the transaction would fall under the concessional capital-market MDR category.
Why UPI AutoPay is treated differently
UPI AutoPay works through a standing authorisation given by the customer. Once the mandate is registered, the payment is collected automatically on the scheduled date.
A one-time UPI payment, on the other hand, is initiated separately for each transaction.
According to Bajaj, the distinction is linked to the nature of the payment. Recurring mandates are used for regular financial commitments such as SIPs, insurance premiums and utility bills. Keeping them outside the MDR structure prevents an already-established payment arrangement from changing every time the wider UPI framework is revised.
Vaibhav Kakkar, Senior Partner at Saraf and Partners, also pointed out that SIPs paid through NACH and other non-UPI bank mandates fall outside this change.
However, investors should check the actual payment mechanism used by their platform. The name of the investment app alone does not determine the treatment. The underlying payment route does.
What happens when you make a ₹1 lakh mutual fund investment?
A one-time mutual fund investment through UPI falls under the capital-market category, which carries an MDR of 0.02%.
On a ₹1 lakh transaction, the MDR calculation would be:
₹1,00,000 × 0.02% = ₹20
This ₹20 is the MDR applicable to the payment-receiving entity. It is not automatically an additional charge payable by the investor.
Kumawat said the platform or AMC would bear the MDR under the current framework and that it cannot be passed on as a separate UPI charge to the investor.
Bajaj, however, made an important distinction. While the framework prescribes the MDR rate, the way an AMC, registrar and transfer agent or platform accounts for that cost is a commercial decision.
In other words, investors should separate two issues:
The MDR prescribed under the framework.
Any future changes in the overall pricing or fee structure of a platform.
The direct MDR itself should not appear as a separate charge to the investor. But investors should continue to check the fee disclosures of the platform they use.
Adding money to a trading account
Many investors use UPI to transfer money to their trading accounts before buying stocks, mutual funds or ETFs.
Such transfers are expected to fall under the concessional capital-market MDR category of 0.02%. For example, a ₹50,000 transfer would result in an MDR calculation of ₹10.
The charge would be incurred by the broker or payment-receiving entity, not directly by the investor.
However, there is a difference between funding a trading account and executing a securities transaction.
Kakkar explained that the relevant charge attaches to the UPI transfer used to fund the trading account. Once the money is already available in the trading account, a subsequent purchase of shares or ETFs does not separately attract UPI MDR.
This distinction is important because a broker may incur the payment cost even when the investor transfers money but does not immediately place a trade.
The issue becomes more complicated for stockbrokers because transferring money to a trading account does not always lead to an actual trade.
Zerodha co-founder and CEO Nithin Kamath raised this concern in a post on X. He said MDR on UPI was “probably inevitable” given the platform’s widespread adoption. However, he argued that the proposed structure could create additional costs for brokers even when customers transfer money but do not go on to buy or sell securities.
Kamath said: “The problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction.”
This means brokers could incur payment-related costs at the time of receiving funds, even if the money remains unused in the customer’s trading account. The concern is particularly relevant for investors who frequently move money into and out of their accounts.
Vibhore Goyal, Founder of OneBanc, also pointed to this issue. He said active traders who transfer money several times a day could multiply the cost on brokers’ books.
Vibhore Goyal, Founder of OneBanc, said this could be more relevant for active traders who move money in and out of their accounts several times a day.
He said: “The group that will feel it is the brokers themselves, not long-term investors: active traders moving money in and out several times a day multiply the cost on the broker’s books.”
The issue for investors is therefore not whether they will receive a separate MDR bill. It is whether brokers eventually adjust their broader pricing models or encourage customers to use payment methods that are cheaper for them.
Will buying ETFs through UPI become costlier?
ETFs trade on stock exchanges like shares. But the payment treatment depends on whether the investor is paying directly for the purchase or first transferring money to a trading account.
Goyal pointed out that the MDR does not apply to the ETF purchase itself when the investor already has money in the trading account. It applies to the UPI transfer used to fund that account.
If the payment is treated as a capital-market transaction, the MDR calculation would be 0.02%.
| Transaction value | MDR at 0.02% |
| ₹5,000 | ₹1 |
| ₹10,000 | ₹2 |
| ₹50,000 | ₹10 |
| ₹1 lakh | ₹20 |
| ₹5 lakh | ₹100 |
The ₹300 cap applies to transactions of ₹15 lakh and above. However, as Goyal noted, this is above the ₹5 lakh daily UPI limit generally applicable to capital-market transactions. Therefore, the cap may have limited practical relevance for many retail investors.
The main point is that the rate is linked to the transaction amount. A larger transfer creates a larger MDR for the intermediary, but the investor should not be charged a separate UPI fee for it.
What about fixed deposits?
Fixed deposits need to be examined differently because the payment route can vary.
When an FD is opened directly through a bank app, the payment is generally an internal bank transfer. Such a transaction does not automatically fall under the same category as a UPI merchant payment.
Bajaj said the treatment would depend on how the payment is classified if an FD is funded through UPI as a merchant transaction.
Kumawat added that NPCI has not explicitly assigned a separate category for third-party fintech FD platforms in the published framework. Therefore, the treatment of such payments will need to be clarified during implementation.
Investors should not assume that every UPI payment for an FD will attract the 0.4% standard merchant rate. The final treatment will depend on the payment structure and classification used by the bank or platform.
Will the new framework change investment behaviour?
The new framework does not represent a blanket increase in the cost of investing through UPI.
SIPs using UPI AutoPay and other recurring mandates remain outside the MDR structure. One-time payments for mutual funds and securities fall under the lower 0.02% capital-market rate. Trading account transfers may create a cost for brokers, while FD payments depend on the route used.
Kakkar said investors should pay attention to any changes in platform pricing, particularly if businesses try to recover payment costs through other charges.
For investors, the practical checklist is simple:
-Check whether your SIP uses UPI AutoPay, NACH or another recurring mandate.
-Distinguish between a one-time investment payment and a transfer to a trading account.
-Check whether your broker discloses any changes in payment or account-funding charges.
-Review the payment terms before using a third-party FD platform.
-Be cautious of any separate charge described as a UPI MDR or UPI surcharge.
The new framework may increase the payment cost for intermediaries, especially where customers make repeated transfers. But the direct MDR should not become a separate charge for retail investors.
The key distinction is not simply UPI versus non-UPI. It is the type of payment, the entity receiving the money and the way the transaction is classified.
Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions.
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