All mutual fund purchases will attract a stamp duty from July 1. While the charges will be levied on all debt as well as equity mutual funds, the impact is expected to be more on debt funds, which are usually held for shorter periods of 90.
The stamp duty was expected to be levied from January 2020 but got deferred to April and then on to July, as per a report by Mint
Here’s what MF investors should know about the stamp duty:
– The stamp duty will be applicable on all mutual funds including lumpsum, systematic investment plans (SIPs) and systematic transfer plans (STPs) and dividend reinvestment.
– Stamp duty will not be applicable on the redemption of units, making it somewhat similar to entry load that was abolished by market regulator Sebi in 2009.
– On purchase of mutual fund units, stamp duty at a rate of 0.005 percent will be levied.
– The duty in case of transfer of MF units such as between two demat accounts will be 0.015 percent.
– An issue of units includes purchase, switch-in, and dividend reinvestment, whereas a transfer implies off-market transactions.
– For dividend reinvestment, the stamp duty will be imposed on the dividend amount after deducting the tax at source (TDS). The duty in case of purchases will be on the purchase amount minus any other charges including a transaction charge, the Mint article said quoting a note by ICICI Prudential AMC.
– This means if there is a transaction charge of Rs 100 on a unit purchase of Rs 1 lakh, then the stamp duty of 0.005% will be applicable on Rs 1 lakh and not Rs 1,00,100.
According to experts quoted in the report, those who have bought units in liquid or overnight funds, or MFs with short holding periods of say, less than 30 days, are the ones who will feel the pinch the most.