Stamp Duty on Mutual Fund Investors from July 1st, 2020

From July 1st onwards there would be changes made to the stamp duty on financial securities. The government has recently made a press release regarding the changes that were to be made regarding the stamp duty. These changes were supposed to be made in January but got deferred to April and then July. From 1st July onwards you will have to pay 0.005 percent of stamp duty on purchase of mutual fund units. Its main implication would be when you purchase mutual fund units in lumpsum, SIP or STPs. This means that purchasing mutual funds for short duration would become costlier.

Let us take an example to understand it better.                

Example

Suppose you purchase mutual fund units worth Rs. 1 lakh then the mutual fund company will issue you units for Rs. 99,995 and charge Rs. 5 towards paying the stamp duty. The stamp duty with different rates applies to all categories of funds like debt, gold, equity and hybrid.

Every Investor Will Have To Bear Stamp Duty

If a large investor purchases exchange-traded funds from a fund house, the stamp duty payable would be 0.005 percent. Similarly, ETF units that are bought from the stock exchanges will face stamp duty at the rate of 0.015 percent. If the units are issued to the investors under the dividend reinvestment plan, stamp duty would also apply to them. Dividend paid to the investor by the company would be treated as consideration and stamp duty on them would be taken from fund house out of the dividend amount before investors are issued with the units.

On redemption of your investments, no stamp duty is applicable. Also when the investor converts his physical holdings into demat mode, no stamp duty is charged.

What is Stamp Duty ?

Stamp duty is a one-time charge. The value of stamp duty is computed on the total value of the transaction. Therefore, if the investment period is very short, your returns will take a hit because of the stamp duty. As per the press note released by , the stamp duty of 0.005 percent will have an annualized impact of 1.82 percent on the investment that is made for one day. When the same investment is held for one month, the cost comes down to 0.06 percent.

It would not be wrong to say that the long term investors will be least impacted with the stamp duty. The major impact of the new stamp duty would be on the large investors who often invest in mutual funds for a day or two.

Conclusion

Mutual funds are known for giving good returns to the investors if held for the long term. If you are a newbie in the market or want to invest in mutual funds, you can visit Indira Securities. We will assist you in picking the best mutual fund plan after understanding your financial needs and goals.