New regulations effective October 15, 2026, will introduce a 0.02% Merchant Discount Rate (MDR) on certain capital market payments made through the Unified Payments Interface (UPI). This framework will apply to transactions involving mutual funds, securities, stockbrokers, and dealers, with a maximum charge of ₹300 per transaction.
Understanding the New UPI MDR
The Ministry of Finance has clarified that this new rate is significantly lower than the standard 0.4% MDR applicable to person-to-merchant (P2M) transactions exceeding ₹2,000. The primary objective behind this reduced charge is to foster sustained retail involvement in India's formal financial markets.
Impact on Investors and Brokers
Experts suggest the direct impact on most retail investors will likely be minimal. Parth Nyati, CEO at Swastika Investmart, noted that the MDR is an internal payment ecosystem charge, and the government expects banks to prevent merchants from passing it directly to customers. UPI applications are also prohibited from imposing additional platform or hidden fees.
For instance, a ₹1 lakh transaction would incur an MDR of ₹20, well within the ₹300 cap. However, the situation could be different for discount brokers, especially those operating with tight margins. Nyati explained that if these brokers must absorb the MDR on every UPI pay-in, the cumulative cost could become substantial, particularly for active and intraday traders who conduct frequent fund transfers. The ultimate effect will depend on how brokers integrate these new payment-related costs into their operations.
IPO Applications and SIPs
Ravi Singh, Chief Research Officer at Master Capital Services, indicated that investors using UPI for IPO applications would experience limited impact due to the much lower 0.02% MDR and its ₹300 cap, rather than the higher standard P2M rate. He reiterated that the MDR is an ecosystem charge, not meant to be directly passed to investors, though payment intermediaries may see some revenue improvement.
Dhiraj Relli, MD & CEO of HDFC Securities, highlighted UPI's role as a critical payment rail for retail investing, including IPOs and Systematic Investment Plans (SIPs). He confirmed that SIPs established via UPI AutoPay are entirely exempt from this new framework, and one-time transfers will only incur a nominal charge, never exceeding ₹300.
The new regulations aim to balance the growth of digital payments with the accessibility of capital markets for retail participants, ensuring that the charges remain manageable and do not deter engagement.