From 1 July 2020, a stamp duty of 0.005% will be imposed on the purchase of mutual funds but not on the redemption of mutual funds. The implementation of the stamp duty was initially slated for January but was postponed first to April and then to July.
Here are key points to help you understand in detail
- The stamp duty of 0.005% will be applicable for all purchase or switch-in amounts, it will be applicable on SIPs, STPs, and lump sum investments.
- Apart from this, stamp duty will also be imposed on the transfer of mutual fund units such as transfers between Demat accounts at 0.015%.
- The stamp duty will apply to every single category of all Mutual Funds — Debt, Hybrid, and Equity Mutual Funds. It is applicable to Direct Plan Mutual Funds and Regular Plan Mutual Fund.
- Investors will be allotted units after the deduction of stamp duty of 0.005%. For example – if you make an investment of Rs. 1,00,000, units will be allotted for Rs. 99,995 (i.e. Rs. 5 deduction as Stamp Duty.
- For units under the Dividend Reinvestment Plan, the stamp duty will be imposed on the Dividend amount minus tax deducted at source (TDS). For example – An investor has invested in a Dividend Reinvestment scheme and the fund declares a dividend worth ₹1,000. This dividend will incur a TDS of 10% at ₹100. The stamp duty will be applicable on 1,000-100= ₹900. Stamp duty payable: 0.005%*900= ₹0.045.
Impact on my Mutual Funds Returns
|Time Period of Investment|
|1 month||3 months||1 year|
Stamp Duty Deduction
|Net Amount Invested|
|Total Redemption Value (With imposition of Stamp Duty)|
|Total Redemption Value (Without Stamp Duty)|
Impact on Returns due to Stamp Duty
The above table shows the impact of stamp duty on mutual fund returns. As the time period of an investment increases, the impact gets smaller and smaller. The stamp duty impact will be negligible for any holding period for more than a month.
To understand more about the impact of Stamp duty on your investments, feel free to reach out to our Advisors.