New UPI payments feature: Now you can make payments through mutual funds too, know about this new UPI feature.

Investors can make payments directly from their liquid mutual funds using UPI. This allows for instant withdrawals and payments. It’s worth noting that it can also offer better returns than a savings account.

New UPI payments feature: Spending money has become easier for investors. With the recently launched “Pay with Mutual Fund” feature, investors can make payments directly from their liquid mutual funds via UPI. This feature allows for instant redemption of the required number of units and payment. ICICI Prudential Mutual Fund and Bajaj Finserv AMC launched this feature in partnership with Curry Money. This new feature makes liquid funds similar to a bank account, with the exception of market-linked returns and UPI.

Why is this feature attractive?

The biggest advantage of this feature is instant liquidity. Liquid funds typically invest in short-term instruments, making withdrawals easy. Now, you don’t need to redeem and transfer funds to your bank account first; payments can be made directly using UPI. This feature can also provide better returns than a savings account. While bank savings accounts offer only 3–4% interest, liquid funds offer returns of up to 7%, depending on market conditions. Furthermore, making everyday UPI payments eliminates the hassle of switching between apps or bank transfers.

Is it better than a savings account?

In many cases, yes, but there are some limitations. A savings account is completely safe and offers insurance up to Rs 5 lakh, and fixed returns. Liquid funds, on the other hand, are a little riskier, but can offer higher returns. If you want to take absolutely zero risk, a savings account would be the right option. However, if you want to take a little risk and earn higher returns while still needing liquidity, this new feature could prove to be a better option.

Points to note

Investors must understand the fund’s average returns, costs, and redemption process. Each redemption may be subject to short-term capital gains tax, depending on your income tax slab. According to Lieutenant Colonel Rochak Bakshi (True North Finance), this could have a greater impact on investors in higher tax brackets. Meanwhile, Anuj Keservani (Zenith Finserve) notes that this feature can impact investment habits, as liquid funds are often used as emergency funds. Therefore, avoid using them solely as an emergency fund and always keep some money in a savings account.

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