Founders of Zerodha and CapitalMind have publicly opposed the application of merchant discount rate (MDR) on mutual fund investments made via UPI, citing increased costs for asset management companies (AMCs). The concern was raised in September 2026, highlighting that MDR charges could surpass existing transaction fees and impact fund returns, particularly for low-cost funds, according to medianama.com.
Deepak Shenoy, founder and CEO of CapitalMind, explained that the mutual fund industry currently pays a flat fee of Rs. 2 to Rs. 3 per transaction regardless of the investment amount. He illustrated that if MDR were set at 0.02%, it would translate to Rs. 10 on a Rs. 50,000 investment, a significant increase that AMCs would have to bear. Shenoy used the example of liquid funds charging 0.15% annually, noting that frequent UPI transactions could lead to cumulative MDR costs exceeding fund earnings.
The opposition to MDR on mutual fund transactions underscores concerns about the financial burden on AMCs and potential negative effects on investors' returns. This issue is notable as it marks one of the first instances where merchants, including Zerodha and CapitalMind, have publicly challenged MDR applicability on mutual funds. The debate reflects broader tensions in India's digital payments ecosystem regarding fee structures and their impact on financial products.
The discussion around MDR charges on mutual fund investments continues to evolve, with stakeholders emphasizing the need for regulatory clarity. The issue was detailed in a medianama.com article published in September 2026, which highlighted the potential cost implications for AMCs and investors alike.