As per the updated SEBI (Securities and Exchange Board of India) guidelines, purchasing mutual funds, debt funds, and equity funds attract stamp duty charges. In fact, stamp duty on mutual funds is applicable, no matter what mode you use to purchase the fund. This includes investments made through SIPs (Systematic Investment Plans), one-time lump sums, dividend investment options, and even STPs (Systematic Transfer Plans).
Now, given that the stamp charges are applicable on all types of funds, there’s no doubt that they will impact your investments plans too. Wondering what kind of impact they will have and how much? Let’s figure it out together.
What are the current stamp charges on mutual fund?
The current stamp duty charge on mutual fund investments is 0.005% of the overall purchase made. However, this charge is not applicable while redeeming mutual fund units.
What’s more, stamp duty charges are applied during fund transfers between Demat accounts too. In this case, the charge is a little higher, at a rate of 0.015%.
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How are the charges collected?
Stamp duty is aone-time charge that is auto-deducted by the transfer agentor the registrar. Usually, they are applied right when you are purchasing the fund units.
Remember, for dividend reinvestment funds, stamp duty is collected on the dividend amount only after the TDS (tax deducted at source) is applied.
The impact of stamp duty on mutual fund investments
Being a mere 0.005% of the total fund amount, stamp duty charges might seem small at first. However, they can still influence your returns depending on the amount of investment and the time horizon.
• Effect of time horizon
For instance, if you hold your funds for a short period, the impact of the stamp duty is much larger.
Consider this: If you invest Rs. 1 lakh in a mutual fund, and you hold it for one day, a stamp charge of Rs. 5 will be deducted at the end of the period. However, if you hold the same amount for a year or 365 days, you still pay the same stamp charge for the term, but your stamp charge per day falls to 5/365 or Rs. 0.014 per day approximately. Thus, the shorter your time horizon, the larger the impact of the stamp charges.
• Effect of the investment amount
Similarly, if you invest a large sum of money, the stamp charges are larger too. For example, when you invest Rs. 1 crore in a fund, the stamp charges applicable are Rs. 500 for the term, in contrast to Rs. 5 when you hold a sum of Rs. 1 lakh for the same period.
It is clear from the above examples that institutional or corporate investors that invest large sums of money for small time frames will see the maximum impact of stamp charges. That said, it is still a good practice to calculate the charges applicable to your investments. Looking for a stamp duty calculator? And if you want a mobile one-stop solution to help you manage your investments, the Tata Capital Moneyfy app can help you out!