Understanding Stamp Duties on Mutual Fund Units: How It Affects Your Investment
Have you ever heard about stamp duties on real estate properties, only to discover that the government has added a similar charge when purchasing mutual fund units as of July 1, 2020? This article provides a comprehensive overview of the stamp duties on mutual fund units, detailing how they impact your investments.
What is Stamp Duty on Mutual Fund Units?
The stamp duty on mutual fund units is a charge levied by the government on the purchase of mutual fund units. The current charge is 0.005, which is a very nominal figure and should not significantly deter investors from making mutual fund investments.
Suppose you invest Rs. 1 lakh in a mutual fund scheme. According to the government's order, you will be charged a sum equivalent to 0.005 of Rs. 1 lakh as stamp duty. This means that if you invest Rs. 1,00,000, you would only pay Rs. 5 as stamp duty.
How is the Stamp Duty Calculated?
The stamp duty is calculated on the investment amount only and is exclusive of any other charges. For example, some investment platforms may charge a separate transaction fee, but ETMONEY does not levy any such charges. Therefore, it is absolutely free to make any investment on the ETMONEY platform.
What Transactions are Covered by the Stamp Duty?
Stamp duty will be applicable on various transactions related to mutual fund units, including:
Lump-sum investment in any scheme Systematic Investment Plans (SIP) Systematic Transfer Plans (STP) Dividend reinvestment transactionsIt's important to note that the stamp duty will be levied at a flat rate of 0.005 on the amount invested, irrespective of the total value of the mutual fund. This charge will be applicable to all categories of mutual funds, including debt, hybrid, equity, index funds, and Exchange-Traded Funds (ETFs).
Impact on Your Investments
The impact of this stamp duty on your investments is minimal in most cases. For instance, if you buy units worth Rs. 1 lakh, your units will be allotted for Rs. 99,995 after the Rs. 5 stamp duty is deducted.
However, when it comes to overnight and liquid funds, which are short-term holdings, the impact is more apparent. The annualized impact of the stamp duty on overnight and liquid funds varies depending on the holding period:
1 day: 1.825 10 days: 0.18 20 days: 0.09 30 days: 0.06 60 days: 0.03 180 days: 0.01 270 days: 0.006759It's important to note that stamp duty is not applicable on the redemption of units or the transfer of units from a broker account to an investor account as no consideration involves.
Conclusion
While the stamp duty on mutual fund units is a new development, it is a small charge that does not significantly impact most mutual fund investors. By understanding how this charge works and its impact on your investments, you can continue to make informed decisions about your mutual fund investments.