In a major fintech innovation, investors can now make Unified Payments Interface (UPI) transactions directly through their mutual fund holdings. The newly launched ‘Pay with Mutual Fund’ feature enables users to redeem the required amount instantly from their liquid fund holdings to complete payments, offering greater flexibility and accessibility.
This feature, currently rolled out by ICICI Prudential Mutual Fund and Bajaj Finserv AMC in partnership with Curie Money, allows users to utilise their investments for day-to-day transactions without routing money through a bank account. Essentially, it transforms liquid mutual funds into a market-linked alternative to savings accounts, combining liquidity with potentially higher returns.
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How the Feature Works
Liquid funds invest primarily in short-term money market instruments and are designed to offer quick liquidity. Traditionally, investors had to redeem fund units manually and transfer money to their bank accounts. With this feature, the process becomes seamless — UPI payments are made directly from the fund, with instant redemption handled in the background.
Benefits of Paying With Mutual Funds
- Instant Liquidity: Investors can make direct payments from their liquid funds without first transferring money to their bank accounts.
- Potentially Better Returns: Liquid funds can yield up to 7%, compared to the 2–4% interest offered by most savings accounts.
- Simplified Transactions: The integration with UPI makes it convenient for users who already rely on digital payments.
- Efficient Cash Management: Individuals and businesses can manage idle funds more efficiently by keeping money invested and liquid.
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Key Considerations Before Using the Feature
While the feature provides several advantages, investors must weigh a few factors:
- Market Risk: Liquid funds, though low-risk, are not entirely risk-free and are subject to market fluctuations.
- Taxation: Returns from liquid funds are taxed as per an investor’s marginal tax rate.
- Emergency Savings: It’s advisable to keep a portion of cash in traditional savings accounts for immediate and insured access.
- Operational Limits: There may be cut-off times or transaction limits depending on the fund and platform.
A Step Towards Smarter Liquidity Management
Experts view ‘Pay with Mutual Fund’ as a significant step in India’s financial evolution, merging the ease of UPI with the returns of market instruments. For investors seeking efficiency, higher yields, and seamless fund access, this innovation marks a smart upgrade in personal finance and digital payments.
