Relevant questions and answers about stamp duty on mutual funds answered
What are the transaction types for which stamp duty is applicable?
Stamp duty on units of mutual fund scheme will be applicable for Purchases,
SIP instalments (including existing SIPs registered prior to applicable date), Switch-ins, STP switch-ins (including existing STPs registered prior to applicable date), Dividend reinvestment transactions, Dividend Transfer / Sweep transactions (in the target scheme) and other Special Products in similar lines. The rate applicable for the same as mentioned above would be 0.005%.
Stamp duty would also be applicable on transfer of units the including transfer of units from one Demat account to another Demat account, Off market transfers etc. The rate applicable for such transfers shall be 0.015% which will be charged by Depositories.
Which mutual fund schemes shall be covered under stamp duty?
All mutual fund schemes (including ETF schemes) are covered under stamp duty charges.
What are the applicable stamp duty rates?
Here are the applicable stamp duty rates-
|For purchase/allotment of units||0.005%|
|Transfer of units (levied by the depository)||0.015%|
Will stamp duty be applicable for units held in Physical mode?
Yes, stamp duty is applicable for physical mode also.
What happens to the past SIP instalments? Will there be a retrospective stamp duty charged?
No, stamp duty is applicable only for the new transactions triggered from 1st July, 2020.
How is the mutual funds’ stamp duty calculated?
Let us assume that you are investing Rs 1,00,000.
Investment amount: Rs 1,00,000
Transaction amount: Rs 100 (as per applicability)
Net transaction amount: Rs 99,900
Stamp Duty= (Net transaction amount) *0.005/100.005= Rs 4.994
If the NAV is Rs 100 (assumed)-
The units purchased= (Net transaction amount-Stamp Duty)/ NAV= (99,900-4.994)/100= 998.9 units
Will the stamp duty be applicable for other transaction types like redemption/switch outs?
No, stamp duty won’t be applicable for redemption, switch outs, STP switch outs, Dividend pay-outs. This is because stamp duty is attracted by Units creation only.
Will the stamp duty be applicable on transfer of units from Broker account to Investor account?
No, because at the time of issuance of units, the stamp duty has already been deducted.
Will the stamp duty be applicable if one is converting the units from physical to Demat mode?
No, as the stamp duty is deducted already when the units are issued.
What are the scenarios where stamp duty on mutual funds is NOT applicable?
1.For redemption, STP switch-outs, dividend pay-outs or switch-outs
2.Broker to investor account- transfer of units
3.Physical units to Demat units- conversion
Will the stamp duty be applicable if we switch units from a growth to dividend plan or vice versa?
Yes. It shall be applicable for switching the units in the same scheme. This is applicable on both direct & regular plan.
How will the stamp duty be calculated on dividend reinvestment?
The stamp duty will be deducted on the amount of dividend (without TDS, if any) and the balance amount will be used to create the units.
Will the stamp duty be applicable on units allotted in unclaimed scheme?
Yes, on account of new unit creation, stamp duty will be applicable for Unclaimed scheme.
Will the stamp duty be displayed in your statement of account?
Yes, against every applicable transaction, the stamp duty amount shall be displayed in the SOA.
How does it impact you, as an investor?
Stamp duty is a one-time charge levied on the purchase of units of mutual fund schemes. Hence, longer the period of investment, relatively less significant can be the impact of it. However, the schemes of lower investment horizon may see a relatively higher impact. Let us look at it with an example of how stamp duty on liquid funds affects your returns-
|Net investment amount||Rs 99,900||Rs 99,900|
|Stamp Duty||Rs 4.994||Rs 4.994|
|Investment amount||Rs 99,895.006||Rs 99,895.006|
|Period of investment||10 days||30 days|
|[email protected] 4% ||Rs 109.473||Rs 328.421|
|New investment amount||Rs 100,004.478||Rs 100,223.426|
As the investment period increased from 10 to 30 days, the effect on the actual return% relatively reduced.