UPI Pay Mutual Funds: Investors can now use their mutual funds to make payments via UPI. The recently launched “Pay with Mutual Funds” feature allows investors to instantly redeem units from their liquid funds and make payments as needed.
If you have a liquid mutual fund and the fund issuer supports this service, the payment amount will be taken directly from your fund. Redemption will happen on the back-end and the money will be transferred instantly via UPI. For example, ICICI Prudential Mutual Fund and Bajaj Finserv AMC have launched this service with Curie Money.
This feature turns liquid funds into a kind of bank account, but also offers market-linked returns and UPI payments.
Why is this feature special?
Instant liquidity: Liquid funds invest in short-term money market instruments and offer quick withdrawals. Investors can now make payments directly, without first transferring funds to a bank account.
Better returns than a savings account: Savings account interest is typically less than 4%, while liquid funds can offer up to 7% at times. This provides better returns while still investing the money.
The convenience of UPI payments: Using UPI for everyday payments is easy. Sourcing liquid funds eliminates the need for withdrawals or bank transfers.
Flexible Cash Management: Short-term funds can be invested in liquid funds and used when needed, instead of keeping them idle in the bank.
Is it better than a savings account?
In many cases, yes, but there are a few things to keep in mind. A savings account is ultra-liquid and safe. Liquid funds may carry some risk but offer better returns. If you want to park money for a short period of time and without risk, a savings account is a better option.
Keep these things in mind as well
Check the fund’s average returns: Consider how much you’ll receive after expenses and taxes are deducted. Understand the redemption time and process, as even the “instant” feature may have a cut-off time or processing delay.
Taxation: Liquid funds are taxed in the same way as bank FDs or savings accounts. This means that the returns are taxable at your marginal tax rate.
Don’t mistake it for an emergency fund: This feature allows for quick withdrawals, but always keep some amount in a savings account to ensure safe access in case of an emergency.
Know your needs: Keeping in mind the investment time and your liquidity needs, decide how much money will be used for immediate payments and how much will be kept for long-term investments.
Overall, this instant redemption feature is a smart use of liquid funds, offering both convenience and better returns. This could be a good option for many investors who have idle money in their bank accounts, provided they understand the process and the risks involved