Investors be aware. Beginning July 1, there will be a stamp duty imposed on mutual fund investments at 0.005 per cent. This will be applicable on purchase of mutual fund units, including lump-sum investments as well as via systematic investment plans and systematic transfer plans.
“Mutual Fund Investors may please note that with effect from July 1, 2020, mutual fund units issued against purchase transactions (whether through lump-sum investments or SIP or STP or switch-ins or dividend reinvestment) would be subject to levy of stamp duty at 0.005 per cent of the amount invested. Transfer of mutual fund units (such as transfers between demat accounts) are subject to payment of stamp duty at 0.015 per cent,” said Association of Mutual Funds of India.
The government in the Union budget of 2019 had proposed to bring in a single stamp duty rate for all financial securities transactions. It was originally slated to be effective from January 9, 2020, but was postponed to July 1, 2020.
How does it impact investors?
“Let’s say you buy units of a fund worth Rs 1 lakh. The stamp duty charged would be Rs 5. This would be deducted from the amount invested and you will be allotted units for Rs 99,995 only,” pointed out mutual fund research firm Morningstar in a note.
For units under dividend reinvestment, stamp duty will be deducted from the dividend amount minus tax deducted at source (TDS) if any and units will be created for the balance amount, it added.
“Your units will no longer be allotted on the amount you invest. So the calculation takes you back to something that existed during the times of entry load,” said Prime Investor in a note.
The stamp duty will be applicable on all mutual funds—equity, hybrid, debt, index funds and even exchange-traded funds. At 0.005 per cent, the impact may not be huge for people who have long investment horizons. However, the impact will be more apparent for debt funds, especially overnight and liquid funds, where your investment horizon may be up to 90 days.
As Prime Investor explains, if you invest Rs 1 crore and the investment horizon is one day and the pre-stamp duty return (yield) was 3 per cent, it will fall to 1.17 per cent. The longer you stay invested, the impact will be lesser. So, if the investment horizon is one month, the return will be 2.94 per cent and for one year it will be 2.995 per cent.
Typically, it is the institutional investors who majorly park their excess cash in overnight and/or liquid funds.
Therefore, “for corporate/treasury money, it does impact their returns. For retail investors, it is just an operational issue and not a big deal,” said Prime Investor.
