UPI MDR on mutual funds: Experts explain how investors could bear the charge and its impact on returns

If you invest in mutual funds and make transactions through UPI , there is a new charge you should know about from 15 October 2026.

A 0.02% Merchant Discount Rate (MDR) will apply to capital-market transactions, including payments towards mutual funds, subject to a maximum charge of ₹ 300 per transaction. The charge is intended to be borne by the merchant and not the investor.

Eshaan Lazarus, Founder & CEO, 021 Trade, said that under the announced framework, investors should not bear the MDR, as it is a merchant-side cost deducted by the acquiring bank when settling funds with the asset management company (AMC) or platform.

But if the charge is passed on to investors , how would it affect the amount invested and the final value of their investment?

Harsh Vardhan Dawar, ACA, CFA, FRM, Founder, Wealth Cafe, said, “AMFI is expected to roll out how the MDR charges will be accounted for.”

For comparison, Dawar pointed to stamp duty, which is deducted from the investor’s investment amount. So, when an investor invests ₹ 10,000, ₹ 0.50 is paid towards stamp duty, and only ₹ 9,999.50 is invested in the mutual fund, with units allotted accordingly.

However, since MDR would be payable only by investors who choose UPI as a payment option, Dawar said the UPI charge could instead be collected separately.

Debasish Mohanty, MD & Chief Strategy Officer, The Wealth Company Mutual Fund, said there are two possible ways it could theoretically be structured.

Illustration assumes a 10% annual return on an equity mutual fund over five years. Stamp duty and other applicable statutory charges are not included in the calculation.

For a ₹ 1 lakh investment, the difference would be slightly higher, with estimated returns of ₹ 61,039 in Scenario 1 and ₹ 61,051 in Scenario 2 after five years.

“The 0.02% MDR reaches the maximum cap of ₹ 300 on transactions of ₹ 15 lakh,” Mohanty added. This means transactions above ₹ 15 lakh will also attract a maximum MDR of ₹ 300.

Dawar said the MDR will have to be treated as a transaction-level cost and borne by the investor opting for the UPI route. “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,” he added.

Lazarus said the expense ratio covers recurring scheme expenses and is reflected in the NAV. “Charging it to scheme assets would require a permissible basis under SEBI’s expense rules; the MDR announcement alone does not establish that permission,” he added.

Mohanty said the treatment would depend on how the first SIP instalment is processed. A one-time UPI payment made before the AutoPay mandate becomes operational may attract MDR, while subsequent instalments through UPI AutoPay would be exempt.