New UPI MDR Rules: Impact on SIPs, Stock Investments and Market Charges

The National Payments Corporation of India (NPCI) has announced the introduction of a Merchant Discount Rate (MDR) on select Person-to-Merchant (P2M) UPI transactions exceeding Rs 2,000, effective October 15, 2026. While the policy introduces a commercial fee structure for merchants, the government and NPCI have explicitly clarified that these charges will not be passed on to consumers, who will continue to use UPI services free of charge.

The new framework distinguishes between one-time merchant payments and automated recurring mandates. According to the NPCI, UPI AutoPay and other recurring mandates, such as those used for mutual fund Systematic Investment Plans (SIPs), utility bills, and OTT subscriptions, are exempt from the prescribed MDR. Investors who have already established recurring SIPs through UPI AutoPay will see no change in their monthly investment costs, as these automated standing instructions do not carry the new transaction charges.

While recurring mandates remain exempt, the NPCI has established a separate, concessional MDR tier for capital-market transactions. This category includes mutual fund purchases, securities trading, and broker wallet top-ups. These transactions will attract an MDR of 0.02% of the transaction value, subject to a maximum cap of Rs 300. This structure is designed to encourage retail participation in formal financial markets while ensuring the sustainability of the digital payment infrastructure.

For general P2M transactions above Rs 2,000, merchants will be subject to a standard MDR of 0.4%, capped at Rs 300 for transactions of Rs 75,000 or more. The framework also includes sector-specific concessions, such as a flat Rs 5 fee for insurance premium payments and utility bill payments exceeding Rs 2,000. Small merchants classified under the P2PM framework, specifically those receiving up to Rs 1 lakh per month via QR codes, remain protected from these charges.

Market analysts and industry participants have noted the potential for the new fee structure to influence the earnings of financial institutions. Brokerages including Citi and Morgan Stanley have identified lenders with high UPI beneficiary volumes, such as Yes Bank, as potential beneficiaries of the monetization efforts. Conversely, industry voices like Zerodha founder Nithin Kamath have highlighted the operational challenges for brokers, noting that while an MDR is sustainable, the cost structure must remain balanced to avoid discouraging high-frequency, low-value transactions.