Hello Readers!
If you are a mutual fund investor you must be receiving emails from your mutual fund house, mentioning “stamp duty being imposed on mutual funds”. Now you must be wondering how this stamp duty exposed on mutual funds will benefit you. Does this will have a significant impact on you?
Well, if you hold your mutual fund investment for a month, then the stamp duty will hardly have any impact that can be noticed. If we talk about quantities, then the stamp duty exposed will impact the growth by at most 0.06% (annualized) if you hold your units for 30 days and this impact will increase further to 0.005% (annualized), in case you hold your investment for more than a year.
What is this all about?
Recently two days before, the Department of Revenue under the Ministry of Finance recently notified that purchase and transfer of units in a mutual fund (any kind - equity or debt) will attract a stamp duty of 0.005% of the purchase value and 0.15% in case of transfer from one DEMAT account to another.
If calculated roughly, then on investment value of around Rs 1,00,000, Rs 5 will be deducted as a Stamp duty and the rest will be used to buy units in the mutual fund. In case if you are investing in the mutual fund via SIP, suppose, Rs 10,000 monthly, then your investment will have a deduction of 50 paise as stamp duty, each month from your SIP installment.
Stamp duty will be deducted along with other, transaction charges from your mutual fund investment, and the rest amount will be utilized to purchase mutual fund units. You didn’t pay any stamp duty earlier but now this will be deducted. You can take it as a nominal entry load.
Will Stamp Duty impact your growth rate?
Well, stamp duty will hardly have any impact on the growth of your investment, however, it will have a bit more effect on your growth if you stay invested for 30 days than compared to one year. if you stay invested for at least 30 days. The impact is about 0.06% for a 30-day period and about 0.005% over a year-long period. For an amount of Rs 10,000, 0.06% translates to Rs 6 and 0.005% translates to about 50 paise. We can conclude that the impact will be lower the longer you stay invested.
Will SIP and lump-sum will experience different impacts?
Well, definitely no. We know that each SIP installment is considered as a fresh new purchase, and each SIP installment will attract a 0.005% stamp duty. The same will be in the case of Lump-sum. One-time investments or lump sum investments will also attract the 0.005% duty.
Will Stamp Duty Be charged Separately?
No, stamp duty will not be charged separately, in fact, it will be deducted from your mutual fund investment along with the other transaction charges.
Will Stamp Duty be charged at the time of redemption?
No, Stamp Duty will be charged only once at the time you buy your mutual fund investment. In the case of SIP investment, it will be charged for each new SIP installment. Stamp duty won’t be charged at the time of redemption. So, once the duty has been paid even if the units are received by your nominee through transmission there shouldn’t be any stamp duty requirement.
Well, if we conclude we can say, the newly imposed tax duty should hardly have any impact on your investment style. There is rarely any financial goal that requires you to invest for anything less than 30 days or rather a year at least.
And overall if we take the percentages (even considering compounding), this is not going to require any change in your style of investing and your approach towards your goals. So, keep aligned with your goals and stay invested in your mutual funds.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).