Starting July 1, 2020 Stamp duty would be levied on various transactions in Mutual Funds. This post explains the impact of stamp duty on mutual funds on your investments.
Stamp duty would be levied on purchase and transfer of mutual fund effective July 1, 2020. The stamp duty would be 0.005% in case of purchase and 0.015% in case of transfer.
Purchase of Mutual Fund can be following scenarios:
These type of purchase transactions would attract 0.005% stamp duty. This means Rs 5 for every Rs 1 Lakhs.
Transfer of Mutual Funds can be:
These type of transfer transactions would attract 0.015% stamp duty. This means Rs 15 for every Rs 1 Lakhs.
There is negligible impact for long term investors. However, for people parking money for short term in liquid mutual funds, there would be more impact. You can understand this by following example:
Amount invested: Rs 1 lakh
Expected Annual return in Liquid fund: 6% (~0.017% daily return)
If you park your money for 1 day. You would pay Rs 5 in stamp duty while the return would be Rs 17. So net of stamp duty you make Rs 12 (17 – 5). Earlier you could make Rs 17. This is almost 30% reduction in returns.
But worry not it does not impact most individuals but definitely would have negative impact on some businesses who used to park money in liquid funds for very short term.
There is always a debate on what is the right way to invest in Mutual Funds – SIP or lumpsum? We give you examples and situations on which of the investment method outperforms. Do read SIP Vs. Lumpsum – Which is the Best way to Invest in Mutual Fund?
Additionally Read about common myths about SIP investment in Mutual Funds
The stamp duty on purchase of a mutual fund is 0.005%. This means you pay Rs 5 for every Rs 1 lakh invested in Mutual Funds. The stamp duty is 0.015% for transfer. It translates to Rs 15 for Rs 1 lakh investment.
The stamp duty will automatically be deducted by the mutual fund’s RTAs (CAMS, KARVY, etc) and paid to the government.
No, the stamp duty is applicable while purchasing only. There is NO stamp duty while selling the funds.
No, the mutual funds invested before July 1, 2020 are not impacted in anyway.
Yes, stamp duty for Mutual funds is applicable for any type of purchase – SIP or lumpsum.
All SIP instalments are considered fresh purchase. So, for all future SIP instalments Stamp duty would be applicable.
STP means you first invest in a Low risk Debt mutual fund and then transfer the money from this fund to another riskier fund like equity or balanced fund. So technically when you invest in first fund, it’s a purchase and hence stamp duty would be applicable. At the time of STP, the earlier unit is sold and new unit is purchased in Second Fund. Since it’s a purchase, stamp duty would be levied again.
Switch means selling in one fund and buying another. So, in this case stamp duty would be levied while buying the mutual fund unit. So yes, Switch would lead to levy of stamp duty.
Dividend Reinvestment is purchase of fresh units using the dividend paid. Hence stamp duty would be charged for dividend reinvestment.
The stamp duty is levied on purchase of mutual fund irrespective of mode of purchase. So it does not matter if the mutual fund is purchased directly through AMC website or through agent, stamp duty of 0.0005% would be levied.
The stamp duty is 0.0005% of the purchase amount. For investment of Rs 1 Lakh you would pay Rs 5 as stamp duty. So, money invested would be Rs 99,995. This is hardly any impact on your returns.
However people or businesses who park money for 1 – 2 days in liquid funds may see returns reduce by more than 30%.
Stamp duty is applicable for all mutual funds including debt fund, international funds, Equity fund, international fund, etc.
If you buy closed ended funds or ETFs on stock exchange, it’s considered a transfer from seller to purchaser. In this case the applicable stamp duty rate be of 0.015%
Everyone hates paying taxes and always are on lookout for Options to Save Tax. However…
Are you worried and confused about Lien amount in SBI? Well you are not alone.…
Get details of latest Sovereign Gold Bond Price, Issue details, taxation and how to invest.…
Download the Excel based Income Tax Calculator India for FY 2020-21 (AY 2021-22). This compares…
Piramal Capital & Housing Finance, has come out with Piramal Capital & Housing Finance Ltd…
IIFL Home Loan, the Housing Finance company from IIFL Group has come out with IIFL…
View Comments
It was totally unknown to me... Thank you for sharing this information.
Purchase by SIP (including SIPs starting later) Changing units is real.,..
Mutual funds closed by the purchase of ETFs or by the stock exchanges Converting mutual fund units from one demat to another demat account are good ideas.