Investors can now use their mutual fund holdings to make payments directly through the Unified Payments Interface (UPI). The newly launched ‘Pay with Mutual Fund’ feature offers a seamless way to redeem liquid fund holdings instantly to complete UPI payments, making mutual funds even more versatile.
This breakthrough is changing the game for investors. If you hold a liquid mutual fund and your fund issuer supports this service, the payment amount will be sourced directly from your holdings. The redemption process happens in the background, and the funds are transferred almost instantly via UPI. For instance, ICICI Prudential Mutual Fund and Bajaj Finserv AMC have partnered with Curie Money to bring this feature to life. Essentially, it transforms your liquid mutual fund into a payment source, much like a bank account, but with the added potential for market-linked returns.
Liquid funds typically invest in short-term money market instruments, offering high liquidity and designed to provide better returns than a regular savings account. Investors traditionally park short-term cash in these funds, but the new feature takes convenience a step further. Instead of redeeming units and transferring money to a bank account, you can now make UPI payments directly from the fund itself.
Instant liquidity: Since liquid funds are highly liquid by nature, this feature allows for payments to be made directly without needing to transfer funds to a bank account.
Potentially better returns: Savings accounts in India often offer interest rates under 4%, while liquid funds can generate returns of up to 7%, depending on the market environment and the fund's performance.
Convenience of UPI payments: With UPI already being the go-to payment method for many, this integration of liquid funds as a payment source makes it easier for investors to access their money instantly.
Flexible cash management: This feature empowers individuals and businesses to manage short-term funds dynamically, keeping them invested for better returns instead of letting them sit idle in a savings account.
While this feature opens up new possibilities, it’s important to keep a few considerations in mind:
Risk and returns: Liquid funds offer higher potential returns than a savings account but carry slightly higher risk due to market fluctuations. Always check fund performance and redemption details. Even though payments are instant, there may still be cut-off times or transaction limits to consider.
Tax implications: The returns from liquid funds are taxed like those from bank deposits, based on your marginal tax rate.
The ‘Pay with Mutual Fund’ feature marks a significant step forward in how liquid funds can be used. For those who typically leave short-term cash idle in savings accounts, it offers the convenience of UPI payments alongside the potential for better returns. With this innovation, personal finance is becoming more efficient, providing investors with a smart way to optimise their funds and gain better yields without compromising on liquidity.
As with any financial tool, understanding the process and aligning it with your risk profile and cash-flow needs is key. For informed investors, this feature represents a win-win for both convenience and profitability.
