Will the stamp duty on mutual fund investments affect you significantly?

You should have received emails from your AMC mutual fund on stamp duty imposed on mutual funds. Will it have a big effect on you?

Quick response

When you keep your units for a month, you ‘d barely feel the effect of this. Quantitatively this means if you keep your units for 30 days, the growth rate will be influenced by at most 0.06% (annualised). The effect goes down to 0.005% (annualised) over a holding span of a year.

So, what of this?

The Ministry of Finance’s Department of Revenue recently informed that the purchase and conversion of units in a mutual fund (any kind-equity or debt) would incur a stamp duty of 0.005% of the purchase value and 0.15% in the case of conversion from one DEMAT account to another.

How to measure it?

Whether you invest by lump sum or SIP in a mutual fund scheme, the balance will be invested after deducting any trading costs AND the stamp duty. You didn’t pay any stamp duty earlier so it’ll be deducted now. Think as a nominal load of entry.

Rs 5 will be deducted as Stamp Duty for an investment value of Rs 1,00,000 and the rest will be used to purchase units in the mutual fund. If you invest that SIP, say Rs 10,000 a month, then the duty translates to 50 paise.

Does it affect your growth rate?

Barely, if you spend at least 30 days. The effect is about 0.06% over a 30-day period and about 0.005% over a year-long period. For Rs 10,000, 0.06% translates to Rs 6 and 0.005% translates to about 50 paise. As you can see, if you plan to stay invested at least 30 days, the impact is hardly anything to consider. The impact would be lower the longer you spend.

Is there any difference to this obligation in SIP and one-time investments?

No! Each SIP instalment is considered a new purchase and will attract a stamp duty of 0.005%. One-time contributions or lump sum transactions would also face 0.005% duty.

Do you have to pay stamp duty to redeem your units of mutual fund?

No! The obligation is only payable if you buy units. Therefore there should be no stamp duty obligation after the duty has been paid even though the candidate receives the units by transmission.

Will you pay a separate stamp duty?

No! The amount will be deducted by the AMC when they process your unit purchase. You don’t have to do something.

Will you change how you invest?

We’ve also suggested staying invested as per the necessity of your goals. To that end, there is hardly any investment target that would allow you to invest for at least 30 days or a year. Your bank account is a better 30-day requirement choice. It is the only case (investing for less than 30 days) where this move may have a minor effect.

Overall, this doesn’t change how you can approach your priorities and spend as long as they are matched to what makes sense based on your needs, despite the slight percentage shift (even taking into account compounding).

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