UPI Introduces ‘Pay With Mutual Fund’ for Instant Transactions

In a landmark move blending investing with instant digital payments, India’s Unified Payments Interface (UPI) has launched a new feature — ‘Pay with Mutual Fund’. This allows users to make real-time transactions directly from their liquid mutual fund holdings, eliminating the need to transfer funds to a bank account first. Backed by ICICI Prudential AMC, Bajaj Finserv AMC, and fintech startup Curie Money, the feature marks a global first in retail financial technology innovation.

What is ‘Pay With Mutual Fund’?

• ‘Pay with Mutual Fund’ is a revolutionary UPI feature that lets investors use their liquid mutual fund units like a digital wallet.
• When a UPI payment is made, the equivalent amount is automatically redeemed from the mutual fund, and the transaction is processed instantly.
• This effectively transforms mutual funds into payment-ready assets, bridging the divide between investment and everyday expense.
• It’s akin to using a savings account, but with the potential to earn market-linked returns of around 6–7% annually, far higher than traditional savings deposits.

How Does It Work?

The system functions on a seamless backend redemption process,

• The user initiates a UPI payment through a linked app.
• The transaction amount is instantly redeemed from their liquid fund.
• The money is routed in real-time to the recipient via UPI.
• This eliminates the intermediate step of transferring funds to a bank account, providing a frictionless experience.

Why Liquid Mutual Funds?

Liquid mutual funds invest in low-risk, short-term instruments like treasury bills and commercial papers. They are favoured for,

• Stability and minimal volatility
• Quick redemption capability
• Better yield than savings accounts
• Regulated oversight by SEBI

They are ideal for this feature due to their balance between accessibility and returns.

Key Benefits of the Feature

This innovation caters to the growing needs of digitally active investors,

• Instant Liquidity: Users can tap into their investments without waiting for redemption settlement.
• Better Returns: Instead of idle savings, funds continue earning market-linked returns until used.
• Simplified Transactions: UPI’s ease is now extended to investment-linked spending.
• Efficient Financial Planning: Funds remain optimally deployed without compromising accessibility.

For businesses, it offers improved cash flow management by linking surplus funds directly to payment workflows.

India: A Global First in Payment Innovation

• India becomes the first country to operationalize such a system.
• While global fintech ecosystems have explored fund-linked credit and debit, UPI’s real-time infrastructure makes direct fund-based payments possible — a leap ahead in retail fintech.