Is UPI payment allowed with any mutual fund scheme? Here’s what you should know

No. UPI payment using any mutual fund is not allowed. This feature is available only with liquid mutual funds. 

Investors can now use liquid mutual funds to make payments through Unified Payments Interface (UPI), thanks to the recently launched ‘Pay with Mutual Fund’ feature. 

The new feature allows users to make real-time UPI payments from their liquid fund holdings by redeeming units instantly when needed. 

If you are investing in a liquid mutual fund scheme and the issuer allows you to use this feature, the payment amount is instantly redeemed and transferred through UPI. Currently, ICICI Prudential Mutual Fund and Bajaj Finserv AMC are allowing UPI payments through their liquid mutual funds. They have launched this feature in partnership with Curie Money.

With the ‘Pay with Mutual Fund’ feature, the liquid mutual funds can be used like a savings bank account for making UPI payments. 

Benefits of the Pay with Mutual Fund feature

How to use it

To use the feature:

• You need a liquid mutual fund and a UPI application. 
• After checking if your mutual fund provider supports this, enable the feature by linking your liquid mutual fund holdings to your UPI ID.
• Choose the fund while making the payment and authorise it.

Is it right for you?

Not all liquid funds currently allow instant withdrawals. Even among those that allow, there is a cap of ₹50,000 on instant withdrawals. 

In terms of returns, liquid funds are currently better than the savings accounts of most banks. However, liquid funds cannot be seen as a substitute for savings accounts as they are not risk-free. Frequent withdrawals from a liquid fund may also trigger tax implications, depending on your total income and tax slab.

Therefore, before opting for UPI payment with the liquid fund feature, you should understand the risk, taxation and other terms and conditions.