UPI MDR on mutual funds: Experts explain how investors could bear the charge and its impact on returns — SkimNews
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- NPCI and the Finance Ministry announced a 0.02% MDR on UPI capital-market transactions effective 15 October 2026, capped at ₹300, with both stating the charge should be borne by merchants (AMCs/platforms), not investors.
- Eshaan Lazarus of 021 Trade said under the announced framework investors should not bear the MDR, noting it is a merchant-side cost settled between the acquiring bank and the AMC, and that the MDR announcement alone does not establish SEBI permission to charge it to scheme assets.
- Harsh Vardhan Dawar of Wealth Cafe argued the MDR would be a transaction-level cost borne by the investor opting for UPI — not deducted from the investment amount like stamp duty, but collected separately — and that it would not affect the Fund's expense ratio since other investors use non-UPI routes.
- Debasish Mohanty of The Wealth Company Mutual Fund outlined two pass-through scenarios: for a ₹1 lakh investment at 10% annual return over five years, estimated returns differ marginally at ₹61,039 vs ₹61,051 depending on how the cost is structured.
- Mohanty noted the 0.02% MDR hits the ₹300 cap on transactions of ₹15 lakh, meaning anything above ₹15 lakh also attracts a flat ₹300 maximum.
- Mohanty clarified the SIP treatment: a one-time UPI payment made before the AutoPay mandate activates may attract MDR, but subsequent UPI AutoPay instalments would be exempt — and if the very first instalment itself runs through UPI AutoPay, it is also exempt.
- Lazarus identified the likely pass-through routes if costs reach investors: a checkout fee at transaction time or higher platform/subscription fees, while Dawar added the cost could alternatively be bundled into a broker/platform's flat fee.
- AMFI is expected to roll out the framework for how MDR charges will be accounted for, according to Dawar.
Why it matters: Roughly two-thirds of retail SIP and lumpsum flows now route through UPI, and a 0.02% per-transaction drag — even if small — compounds across years of investing. For investors using UPI AutoPay the charge is largely moot; for those making one-time lump payments, AMFI's final accounting framework will decide whether the ₹300 cap quietly erodes every ₹15 lakh-plus top-up.
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