Stamp Duty on Mutual
Funds: How will it impact investors?
From
1st July 2020, Stamp Duty @0.005% will be levied on purchase of Mutual
Funds and @0.015%
on transfer of Mutual Funds. In simple words while buying mutual funds
we will
be paying a duty of 0.005% and while transferring them from one Dmat to
other Dmat account the duty will be 0.015%.
What does it mean and how may it impact investors?
Actually the stamp duty amount is not much and should not affect your
investment choices.
Still its always good to understand and be aware of even small costs of
our investments. Lets just discuss everything about the Stamp Duty on
Mutual Funds.
Stamp Duty on All types of Mutual Funds
Firstly stamp duty is applicable on all types of Mutual Funds; be it a
long term lump sum
mutual fund or an SIP or a dividend
reinvestment plan or others.
No Stamp Duty on Redemption
There is no stamp Duty at the time of redemption of your Mutul Fund. So
no stamp duty at the time when you redeem your fund.
Stamp Duty only on purchase & transfer
Stamp Duty is only at the time of buying of mutual fund or at the time
of transfer of a mutual fund. Everytime we buy a mutual fund duty
@.005% will be levied. And if there is a transfer of Mutual Fund it
will be .015%
Stamp Duty
charge is not much
Technically impact of Stamp Duty will be very low to be felt by buyers.
- For Example:
- If I buy a monthly SIP of ₹
10,000, I will be paying just 50 paise per month as stamp duty for my
buying the SIP. For the 12 months of a monthly SIP of ₹ 10,000, stamp duty will be just ₹ 6.00.
- Similarly for a
lumpsum investment of ₹ 1,00,000 in Mutual Funds the stamp duty
will be just ₹
5.00
Dividend part of Dividend Reinvestment Plan
will attract Stamp Duty
Stamp Duty will be
charged on the dividend part of dividend reinvestment plans, as the
dividend is invested in buying additional units of the mutual fund.
Total Amount of Stamp Duty will become more
for short term holdings
Stamp duty cost will be more for the investors who trade in mutual
funds. Investors who buy & redeem mutual funds frequently say in 15
days or so, the cost will increase as the stamp duty is charged
everytime you buy a mutual fund. So for
₹ 1,00,000 mutual fund traded 24 times in
an year stamp duty cost of ₹ 5.00 will be multiplied 24 times and
will become ₹
120 for the year.
Impact of Stamp Duty will be felt by large investors who invest large
sums for a day or two. Basically return of corporate investors will be
affected. For an investment of ₹ 1.00 Cr in mutual fund held overnight earning a days return of ₹
1700 (6% annual) the stamp duty cost of ₹
500 (.005% of 1.00 cr) will result in a decline of around 29% of its
days return. This Impact however will be reduced with increase in holding period.
- In
a nut shell decisions of Mututal Fund Investments for a long term
should not have any fear of stamp duty. For short term investors its
better to evaluate the impact and accordingly decide the holding period
of investment.
Dont miss to write to Arpita for any query or advice or a feedback at
arpita@tdsmaster.com
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