What it means for you, Stamp Duty on Mutual Funds– Since, 1 July 2020, stamp duty will be imposed on the purchase of any type of mutual funds including systematic investment plans (SIPs), systematic transfer plans (STPs) and dividend reinvestment.The duty will apply to all mutual funds—debt as well as equity.
This is to remember that there will not be any stamp duty on the redemption of units.
Features & Major highlights
- The stamp duty will apply to all kinds of mutual fund purchases, including lump sum, SIP, STP and dividend reinvestment.
- The stamp duty will be imposed at a rate of 0.005% on the purchase or switch-in amount.
- Stamp duty will also be imposed on the transfer of mutual fund units such as transfers between demat accounts at 0.015%.
- For dividend reinvestment, it will be imposed on the dividend amount minus tax deducted at source (TDS). For purchase, it will be imposed on the purchase amount less any other charge such as a transaction charge.
- It may be treated as some sort of entry load. Entry loads on mutual funds were abolished by the Securities and Exchange Board of India (Sebi) in 2009.
For example, assume your purchase amount is ₹1 lakh and the transaction charge is ₹100 making the net purchase cost ₹1,00,100. The stamp duty will be imposed on ₹1 lakh and not on ₹1,00,100. At 0.005% it will come to ₹5.
Impact of Stamp Duty on Mutual Funds
- The stamp duty is likely to have the most impact on short holding periods of 90 days or less and highest in 30 Days and below.
- The impact is greater for overnight funds, which are held for very short periods of time.
Retail investors generally invest in liquid funds rather than overnight funds. Hence the impact will be minimum.