UPI Tips: Now make UPI payments directly from mutual funds, learn about the new Pay with Mutual Fund feature..

Investors can now use their mutual funds to make payments through UPI (Unified Payments Interface). The recently launched Pay with Mutual Fund feature allows investors to make payments directly from their liquid fund holdings, with units of the required amount instantly redeemed.

If you own a liquid mutual fund and the fund house supports this service, the payment amount will be deducted directly from your fund and transferred almost instantly via UPI. Currently, ICICI Prudential Mutual Fund and Bajaj Finserv AMC have launched this feature in collaboration with Curie Money. This feature allows liquid funds to be used like a bank account, but with the potential for market-linked returns.

Why is this feature special?
Instant liquidity: Liquid funds invest in short-term money market instruments and provide instant access to funds. Now, you don't need to first transfer funds to a bank account; you can make payments directly.

Better returns than a savings account: Savings accounts typically offer less than 4% interest. Liquid funds, on the other hand, can offer returns of up to 7%.

UPI Payment Convenience: Most of us use UPI daily. Now, withdrawing and making payments directly from liquid funds is easy, without the need for a separate app or bank transfer.

Flexible Cash Management: Both individuals and businesses can keep their short-term funds invested in liquid funds and access them as needed.

Is it better than a savings account?
In many cases, yes, but keep a few things in mind. Savings accounts are ultra-liquid, safe (insured up to ₹5 lakh), and have predictable returns. Liquid funds can offer higher returns but carry some risk. If you're parking money for the short term and are risk-averse, a savings account is a safe option. However, if you're looking to earn additional returns by taking on some risk, this feature may be preferable.

Points to keep in mind

Understand the fund's average returns and redemption process.

The tax treatment of liquid funds is similar to that of a bank fixed deposit or savings account.

Don't consider it solely as an emergency fund. It's better to keep some money in a savings account as well.

Be clear about how much money will be used for payments, considering your investment and liquidity needs.

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