What Is The New 'Pay With Mutual Fund' UPI Feature? Here's All You Need To Know

Imagine paying for your morning coffee or settling a bill with friends using your mutual fund investments- yep, you heard that right! India’s Unified Payments Interface (UPI) has rolled out an exciting new feature called ‘Pay with Mutual Fund’, blending the ease of digital payments with the earning potential of liquid mutual funds.

It’s like turning your investments into a supercharged digital wallet. Launched by players like ICICI Prudential Mutual Fund and Bajaj Finserv AMC in partnership with Curie Money, this feature is making waves as the world’s first real-time mutual fund-based payment system. Let’s break it down and see why this could be a game-changer for your wallet.

In simple terms, ‘Pay with Mutual Fund’ lets you use your liquid mutual fund holdings to make instant UPI payments. No need to redeem your funds, or wait for the money to hit your bank account, or deal with clunky transfers.

When you tap to pay via UPI, the system instantly converts the required amount from your mutual fund units into cash and sends it to the recipient, all in a split second.

It’s like having a savings account that earns better returns while still being ready for everyday expenses.

Think of it as a hybrid: the convenience of UPI meets the growth potential of mutual funds. Whether it’s paying for groceries, splitting a dinner bill, or shopping online, your investments are now as liquid as cash but with a chance to grow.

Liquid mutual funds invest in short-term, low-risk instruments like treasury bills (government-backed securities), commercial papers (short-term loans issued by companies) and certificates of deposit (fixed-term deposits with banks). These funds are designed to be stable and easily accessible, making them perfect for this UPI integration.

When you make a payment:

1.  You select your liquid mutual fund as the payment source in your UPI app.
2.  The system instantly redeems the necessary units from your fund.
3.  The redeemed amount is transferred to the recipient via UPI in real time.

No manual withdrawals, no waiting period, just seamless, hassle-free payments. It’s like your mutual fund just became your go-to payment buddy.

The Big Benefits

This feature is a win for anyone who loves convenience and wants their money to work harder. Here’s why it’s creating such a buzz:

Instant Access to Your Money

Your liquid mutual fund is now as good as cash. Need to pay for something? Just use your UPI app and the funds are available instantly—no need to plan redemptions or wait for bank transfers.

Better Returns Than a Savings Account

Unlike a savings account that might give you a measly 3-4% annual interest, liquid mutual funds typically offer 6-7% annualised returns. That means your money is growing while it’s parked, ready for your next UPI transaction.

UPI’s Ease Meets Investment Smarts

UPI is already a household name in India for its speed and simplicity. Now, with your mutual fund linked to your UPI ID, you can pay for anything, anywhere, without switching apps or moving money around.

Smarter Cash Management

Got idle cash sitting in your bank account earning next to nothing? With this feature, you can keep your money invested in a liquid mutual fund, earning better returns and still use it whenever you need. It’s like having your cake and eating it too.

1. Check Your Fund: Make sure you have a liquid mutual fund with a provider that supports this feature, like ICICI Prudential or Bajaj Finserv AMC.

2. Link to UPI: In your UPI app, link your mutual fund to your UPI ID. This is usually a one-time setup.

3. Pay Away: When making a payment, select your mutual fund as the source, authorise the transaction and you’re done!

It’s that simple. Just a few taps and your investments are working as hard as you do.

This feature is exciting, but it’s not a one-size-fits-all solution.

The Good Stuff

• Convenience: Payments are instant and you don’t need to juggle multiple accounts.
• Higher Returns: Liquid funds generally outperform savings accounts, giving your money a chance to grow.
• Innovation: India is the first country to roll out this feature, so you’re part of a cutting-edge financial revolution!

Things to Watch Out For

• Not All Funds Qualify: Only certain liquid mutual funds support instant withdrawals and there’s often a ₹50,000 cap on instant redemptions.
• Low Risk, But Not Risk-Free: Unlike savings accounts, liquid mutual funds carry a small amount of market risk. While they’re generally stable, returns aren’t guaranteed.
• Tax Implications: Frequent withdrawals could trigger taxes, like short-term capital gains tax, depending on how long you’ve held the units and your income tax slab. Check with a financial advisor to understand the impact.
• Not a Full Savings Account Replacement: If you need absolute safety for emergency funds, a savings account is still the gold standard.

Also Read: Key Factors To Watch For Indian Stock Market Next Week – List

If you’re someone who loves the idea of earning more on your idle money while keeping it accessible, ‘Pay with Mutual Fund’ could be a fantastic fit. It’s perfect for tech-savvy investors who are comfortable with low-risk mutual funds and want the flexibility of UPI payments.

However, if you prioritise zero risk or need funds for critical emergencies, a traditional savings account might still be your best bet.

Before diving in, double-check:

• Does your mutual fund provider support this feature?
• Are you okay with the slight risks and potential tax implications?
• Is the redemption process smooth and reliable?

The ‘Pay with Mutual Fund’ feature is a bold step toward making your investments work harder while keeping them within arm’s reach. It’s like giving your money a superpower which will earn returns while being ready for action via UPI.

Whether you’re a busy professional, a small business owner, or just someone who loves smart financial hacks, this feature could add a new layer of convenience to your life.