The Indian government’s move to introduce a legal basis for merchant discount rates on UPI payments raises concerns among mutual fund distributors about potential cost increases and the impact on digital investment flows, amid ongoing policy developments.
India’s move to create a legal basis for merchant discount rates on some UPI payments has raised fresh questions for mutual fund distributors, who fear that a new charge could squeeze already thin margins and complicate digital investment flows. The Lok Sabha has passed the Taxation and Other Laws (Amendment) Bill, 2026, but the government has not yet notified the final rate, the threshold or the exact categories of transactions that would be covered.
For mutual fund platforms, the concern is not consumers paying directly at the point of sale but the possibility that merchants, in this case investment platforms, could be left to absorb the cost or recover it elsewhere. Industry estimates cited by ETBFSI suggest app-based distributors typically work on margins of about 0.75%, so a fee in the 0.25% to 0.30% range could take a sizeable bite out of revenue. A proposed levy of 0.3% on a Rs 1 lakh transaction would amount to Rs 300, far more than the current stamp duty of Rs 5.
The impact would probably vary by ticket size. Systematic investment plans, or SIPs, involve smaller instalments and would therefore face a lower absolute charge per payment, while lump-sum purchases could be hit more sharply. Under one model discussed in the report, transactions above Rs 2,000 could account for a small share of UPI volume but a far larger share of value, which makes high-value investment flows especially relevant to the rule-making process.
Mutual fund companies and online distributors are pushing for an exemption, arguing that investment transactions should not be treated in the same way as ordinary merchant payments. Their wider worry is that added payment costs could alter the economics of digital distribution, particularly for platforms that use UPI to reach investors beyond the biggest cities. For now, though, the bill only creates the framework: the real effect will depend on the rules that follow and whether investment payments are ultimately brought into the chargeable category.
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