Pay with Mutual Funds: UPI's New Instant Payment Option

UPI (Unified Payments Interface)has recently launched a new feature called "Pay with Mutual Funds" for instant transactions. This recently launched feature allows investors to use their mutual fund units to make payments via UPI. With this payment option, the investors can instantly redeem units from their liquid funds and make payments as needed.

The payment amount will be taken directly from your fund if you have a liquid mutual fund and the fund issuer supports this service. The money from your fund will be transferred instantly via UPI and the redemption of units will happen on the back-end. For instance, ICICI Prudential Mutual Fund and Bajaj Finserv AMC have launched this service with Curie Money.

This new feature of UPI makes your liquid mutual funds act as a bank account, while offering market-linked returns and UPI payments.

Must Read: Best Mutual Funds to Invest in 2025: Low-Risk Options for High Return

Why Pay with Mutual Funds Feature Special?

Here are the benefits associated with the new payment option:

Immediate Liquidity: Liquid funds invest in short-term money market instruments and provide fast withdrawals. With this feature, there is no need to transfer funds to a bank account, investors can make payments directly from the fund.

Higher Returns Than a Savings Account: Liquid Mutual Funds may offer up to 7% at times, whereas savings account interest is typically less than 4%. So, this pay with MF units option provides better returns while still investing the money.

The Ease of UPI Payments: Using UPI for daily transactions is effortless and with new features, you can also access your funds without needing to withdraw cash or transfer money from your bank.

Flexible Cash Management: With this payment option, you can invest short-term funds in liquid funds instead of leaving them sitting in the bank. This way, you can use the money when you need it.

Now, a question must be popping in everybody's mind: Is This New Option Better Than a Savings Account?

Well, in many scenarios, yes, it is, but there are a few things to consider. A savings account is ultra-liquid and safe, while liquid mutual funds may carry some risk but offer better returns. So, if you want to invest money for a short period of time and without risk, a savings account is a better option.

Also Read: Best SIP Plan for 20 Years: With Equity, Debt & Hybrid Funds

Things To Keep In Mind-

Reviewing Fund's Average Returns: Determine how much you will get after expenses and taxes are deducted. Understand the redemption time and process, as even the “instant” feature may have a cut-off time or processing delay.

Taxation System: Liquid funds are taxed in the same way as bank FDs or savings accounts, which means that the fund's returns are taxable at your marginal tax rate.

Do Not Use It As An Emergency Fund: This feature allows for immediate withdrawals, but always keep some amount in a savings account to ensure safe access in case of an emergency.

Understand Your Requirements: Consider your investment time and liquidity needs to determine how much money will be allocated for immediate payments and how much will be kept for long-term investments.

So overall, UPI's pay with mutual funds, instant transaction with MF units feature is an innovative way to use liquid mutual funds for payments, providing both convenience and better returns. This makes it an excellent resource for investors with idle money in their bank accounts, as long as they understand the process and the associated risks.

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