Mutual Funds Stamp Duty - What's the Impact on investments?

From 1st July 2020, on all the mutual fund purchase transactions, Stamp Duty will be applicable. For all the purchase transactions in Mutual Funds, stamp duty will be applicable @0.005%. And for the ETF units bought from stock exchanges, the stamp duty applicable will be @0.015%. Here are all the details you need to know:

How Will You Pay Stamp Duty on Mutual Funds?

You will not have to pay the stamp duty yourself but it will get deducted automatically when you make the investment in mutual funds. For example, If you invest 1 Lakh rupees in mutual funds, the RTA will deduct 5 Rupees i.e. 0.005% of 1 Lakh and invest the remaining 99,995 in the mutual fund.

For Which Transactions This Stamp Duty Will Be Applicable?

The stamp duty will be applicable for Purchase, SIP, Switch in, and STP in transactions. That means, for redemption, Switch out and STP out there will not be any stamp duty charge. In short, only for all the purchase transactions, there will be an implication of stamp duty. These purchase transactions also include dividend reinvestment plans.

What If The SIP Was Started Before 1st July 2020, Will There Still Be The Impact Of Stamp Duty?

For the SIP installments before 1st July 2020, there will be no stamp duty charge. But for all the installments that will get debited after 1st July 2020, the stamp duty will be applicable @0.005% no matter when the SIP was started. So even if your SIP was started before 1st July 2020, all the new installments that will get debited on and after 1st July 2020 will attract stamp duty charge.

Is This Stamp Duty Applicable For All Mutual Fund Categories?

Yes, the Stamp Duty on mutual funds will be applicable for all the mutual fund categories; Equity, Debt, and Hybrid.

Will I Be Charged The Stamp Duty For Investment In A Direct Plan?

Yes. The stamp duty is applicable for both investment in Regular plan as well as a direct plan of mutual funds.

How The Stamp Duty Will Impact On Switch And STP Transactions?

As we mentioned earlier, the stamp duty will be applicable on purchase transactions and not on redemption transactions. Hence, when you purchase a particular fund, stamp duty will be deducted @0.005%. And when you switch from one fund to another, switch out will not incur any cost related to stamp duty. But the fund where you switch in, there the cost will be included. The same will be the impact for STP transactions.

What Will Be The Impact Of This Stamp Duty On Mutual Fund Returns?

The Stamp Duty charge on Mutual fund transactions is 0.005%. Hence it is extremely negligible from a long term investment point of view. Here’s an example for simplified understanding:

If you invest Rs. 1 Lakh, Stamp Duty @0.005% is Rs. 5. Before Stamp Duty, At NAV of Rs. 10, you would have received 10,000 units of a mutual fund. Now after stamp Duty, At NAV of Rs. 10, you will get 9999.5 units of the same mutual fund. Hence over the long term, the impact on return would be very small.

These are all the details you need to know related to the new Stamp Duty application. This does not affect any of your long term goals as the impact of the stamp duty will be very minimal over the long term, hence you do not have to make any changes in your investments just because of the introduction of the Stamp Duty on Mutual Funds.