A major innovation in India’s financial ecosystem has arrived — investors can now make instant payments using their mutual fund units through the Unified Payments Interface (UPI).
This new feature allows eligible liquid mutual fund schemes to function much like a bank account, enabling investors to redeem units instantly for payments while continuing to earn market-linked returns.
Key Features
-
Instant Redemption and Payment:
Investors can instantly redeem their mutual fund units and make payments directly via UPI — without needing to first transfer funds to a bank account. -
Supported by Leading Fund Houses:
The facility is currently offered by ICICI Prudential Mutual Fund and Bajaj Finserv Asset Management Company, in partnership with fintech platform Curie Money. -
Liquid Mutual Funds as the Base:
These funds invest in short-term money market instruments, offering safety, liquidity, and accessibility. Investors can now use them both as an investment tool and a payment instrument.
Why This Matters for Investors and Advisors
This feature offers a dual advantage for investors:
-
Funds remain invested, potentially earning better returns than a regular savings account.
-
Money stays instantly accessible for daily expenses and payments.
For clients who maintain large balances in savings accounts for liquidity, this innovation provides a way to enhance returns without compromising access.
However, advisors and investors must carefully evaluate risk, taxation, and operational details before adopting this option.
For wealth managers and mutual fund distributors, this development opens a new conversation avenue with clients — one that bridges the gap between savings and investments, combining liquidity with growth potential.
Important Considerations and Risks
While “Pay with Mutual Funds” offers convenience, it’s important to understand its nuances:
-
Not a Bank Account Substitute:
Liquid funds are not risk-free. They differ from savings accounts in risk profile and capital protection. -
Tax Implications:
Returns from liquid funds are subject to mutual fund taxation rules, not savings account interest rates. Investors should assess how this impacts their post-tax returns. -
Maintain Emergency Liquidity:
Even with this feature, a portion of emergency funds should remain in safe, instantly accessible instruments like savings or sweep accounts. -
Platform Availability:
The “Pay with Mutual Funds” feature depends on fund house and UPI platform support. Investors should confirm availability with their chosen fund or app before transacting.
Strategic Outlook for Clients and Advisors
Wealth managers and advisors can use this new facility to help clients optimize idle cash while ensuring liquidity.
Here’s how to position it:
-
Encourage clients to allocate a portion of excess savings into liquid funds offering the “Pay with Mutual Funds” feature.
-
Emphasize that this is a liquidity-enhanced investment strategy, not a substitute for all cash holdings.
-
Align recommendations with the client’s risk appetite, financial goals, and tax situation.
-
Stay updated on the evolving digital-payment and mutual fund integration landscape — as this innovation scales, early familiarity can strengthen advisory credibility.
Source: TimeBull