What is UPI’s ‘Pay With Mutual Fund’ Feature?

India’s Unified Payments Interface (UPI) has introduced a new capability — Pay with Mutual Fund — allowing investors to make real-time payments directly from their liquid mutual fund holdings. This innovative feature, currently supported by ICICI Prudential Mutual Fund and Bajaj Finserv AMC in partnership with Curie Money, bridges the gap between investment and payment, effectively turning mutual funds into transaction-ready financial instruments.

What Is ‘Pay With Mutual Fund’?

The Pay with Mutual Fund feature enables investors to use UPI for payments directly sourced from their liquid mutual fund units. Instead of transferring money from a mutual fund to a bank account before making a transaction, the redemption and payment occur instantly in the background. This seamless integration allows mutual fund investors to enjoy both liquidity and market-linked returns while maintaining everyday payment flexibility.

How the System Works

Liquid mutual funds primarily invest in short-term money market instruments, offering stability and easy access to funds. Through this new feature, when a user makes a UPI payment, the required amount is automatically redeemed from their liquid fund, and the money is routed instantly to the recipient. This eliminates the need for manual redemption or inter-account transfers, providing a smooth payment experience similar to that of a savings account but with better yield potential.

Key Benefits for Investors

The feature offers multiple advantages for both individuals and businesses:

• Instant Liquidity: Payments are executed directly from mutual fund holdings, ensuring real-time access to invested money.
• Higher Potential Returns: Liquid funds generally provide 6–7% annualised returns, higher than traditional savings accounts, which often yield below 4%.
• UPI Integration: The system aligns with the digital payment habits of Indian consumers, allowing investment accounts to double as payment wallets.
• Efficient Cash Management: Users can keep idle funds productively invested, using them only when needed through UPI.

Related GK Facts

• UPI, launched in 2016 by the National Payments Corporation of India (NPCI), processes over 12 billion transactions monthly.
• Liquid mutual funds invest mainly in treasury bills, commercial papers, and certificates of deposit.
• India is the first country to enable mutual fund-based digital payments through a real-time interface like UPI.
• ICICI Prudential AMC manages over ₹6 lakh crore in assets as of 2025, making it one of India’s largest fund houses.

Considerations Before Using the Feature

While Pay with Mutual Fund brings unmatched flexibility, investors should remain mindful of certain factors. Liquid funds, though low-risk, are not insured like bank deposits and can experience minor value fluctuations. Taxation applies to redemptions based on an investor’s income slab, and transaction cut-off timings may affect instant redemptions. Financial planners advise retaining some savings in bank accounts for emergencies while using liquid funds for short-term investments and transactional convenience.