For retail investors, the Retail Direct scheme offers a way to invest in government securities directly, without the need for a broker. Investors can open a Retail Direct Gilt (RDG) account with the RBI and access both primary issuances and the secondary market through NDS-OM.
The platform allows you to invest in (T-bills), central government dated securities (G-Secs), State Development Loans (SDLs), Sovereign Gold Bonds (SGBs) and Floating Rate Savings Bonds.
While making these investments, payments can be made conveniently through the Unified Payments Interface ().
The Merchant Discount Rate (MDR) for capital market transactions is set at 0.02% of the transaction value, subject to a maximum of ₹300, effective from 15 October.
Since the charge is borne by the merchant or broker rather than the investor, does this mean the RBI will pay the MDR in this case? Here’s what experts have to say.
Who will pay the MDR for RBI Retail Direct UPI transactions?
“No fee is charged for opening and maintaining a Retail Direct Gilt account with the RBI, while UPI is available as a payment method. However, the absence of an RDG account fee does not necessarily mean there is no cost involved in processing the underlying payment,” Shams Tabrej, CEO and Founder of Ezeepay (MJ Digital Services), noted.
He added that the specific allocation of any such cost or MDR would depend on the applicable arrangements between the RBI and the participating payment-system entities.
“It would not be appropriate to conclusively attribute the MDR liability to the RBI without reference to those arrangements,” Tabrej said.
Under the new framework, capital-market transactions attract an MDR of 0.02%, capped at ₹300 per transaction. So, on a ₹1 lakh investment, the MDR works out to be ₹20, but that amount cannot be passed on to the investor, Adhil Shetty, CEO of BankBazaar, said.
RBI Retail Direct is a fee-free brokerage service. However, the RBI states that applicable payment gateway charges will be borne by the investor, Ayush Jindal, Co-founder and CEO of ScoreMe Solutions, said.
In primary auctions, UPI also offers fund-blocking and transfer facilities, including mandate-based payment mechanisms for Retail Direct, he added.
Which entities are involved in the transaction?
The investor initiates the payment through UPI using their bank account, while the UPI ecosystem facilitates the transaction and settlement. RBI Retail Direct is the platform through which the investor purchases government securities, with banks and payment-system participants enabling the underlying payment, Aakash Bansal, Co-founder and CEO of MIDASX, noted.
RBI Retail Direct is the investment interface through which the investor accesses government securities, whereas UPI functions as the payment rail used to move the funds, Tabrej said.
Does investor bear the cost of UPI MDR?
The MDR charges are not directly imposed on consumers but form part of the payment system. However, according to the RBI’s Retail Direct FAQ, investors have to bear the applicable payment gateway charges, Jindal said.
“Unless the applicable terms explicitly provide for a charge to the investor, MDR should not be treated as an investor-facing fee simply because UPI is being used as the payment mechanism,” Tabrej said.
What happens when an investor transacts through NDS-OM?
NDS-OM (Negotiated Dealing System – Order Matching) transactions involve securities that have already been issued and are traded in the secondary market, Jindal said.
In the case of payment through UPI, the applicable MDR will be determined based on the classification of the transaction under the new UPI framework, he noted.
What is the key takeaway?
Tabrej said, “The precise treatment of any MDR would depend on the payment and settlement arrangements applicable to that transaction.”
Without the relevant contractual or payment-system documentation, it would be premature to conclusively identify which participant bears the MDR, he added.
Disclaimer: This is only for informational and educational purposes. Please consult a qualified expert for the latest laws and regulations.