The government's new Unified Payments Interface (UPI) Merchant Discount Rate (MDR) framework will cover certain capital market-related payments, including transactions involving mutual funds, securities, stockbrokers and dealers.

Under the framework, such transactions will attract an MDR of 0.02 per cent, capped at Rs 300 per transaction. This is significantly lower than the 0.4 per cent MDR applicable to person-to-merchant (P2M) transactions above Rs 2,000.

The Ministry of Finance stated that the lower rate is intended to support continued retail participation in formal financial markets.

Parth Nyati, CEO at Swastika Investmart, said the proposed MDR is unlikely to materially change the cost of investing for most retail investors, although the impact could be more relevant for brokers operating on thin margins.

"For investors, the immediate impact should be limited because the MDR is a charge within the payment ecosystem rather than a direct customer fee. The government has said banks should ensure that merchants do not pass the MDR on to customers, while UPI apps are prohibited from imposing additional platform or hidden charges," Nyati said.

At 0.02 per cent, an MDR on a Rs 1 lakh transaction would amount to Rs 20, subject to the Rs 300 cap.

Nyati said the potential impact could be more significant for discount brokers if they have to absorb MDR on repeated UPI pay-ins.

"Discount brokers have built their proposition around low or zero brokerage, relying on scale, ancillary revenues and tight operating costs. If brokers have to absorb MDR on every UPI pay-in, the cumulative cost could become meaningful, particularly for active and intraday traders who make frequent fund transfers," he said.

He added that the effect would depend on how brokers account for the additional payment-related cost.

Ravi Singh, Chief Research Officer at Master Capital Services, said the impact on investors using UPI for IPO applications is likely to be limited.

"For investors using UPI for IPO applications, the impact is likely to be limited because capital-market transactions, including securities-related payments, will attract a much lower MDR of 0.02 per cent, capped at Rs 300, rather than the standard 0.4 per cent P2M rate," Singh said.

He added that the MDR is an ecosystem charge and should not be directly passed on to investors. However, payment intermediaries may earn some revenue from the MDR, improving the economics of UPI transactions.

Dhiraj Relli, MD & CEO of HDFC Securities, said UPI has become an important payment rail for retail investing, including IPO applications and SIP-related payments.

"For stock broking clients, in my view, the practical impact is minimal. SIPs set up through UPI AutoPay fall outside this framework entirely, and one-time transfers will carry a cost of a few rupees at most, never more than Rs 300," Relli added.

The proposed norms will take effect from October 15, 2026.