All your mutual fund purchases will attract stamp duty from July 1 onwards. This means that whenever you make a new investment in a mutual fund scheme, it could be any scheme: equity, debt funds, or exchange-traded funds or through any mode SIPs or STPs, stamp duty will be levied.
Both demat and physical transactions will be covered under its ambit.
However, the stamp duty is just on the purchase of fresh mutual fund units. It is sort of an entry load. It will not be applied when you are selling or redeeming your mutual fund units.
A. How Much is the Stamp Duty?
The stamp duty will be levied at the rate of 0.005% on the value of units purchased.
For the transfer of mutual fund units between Demat accounts, a stamp duty of 0.015% will be applied.
B. Where is the Stamp Duty Applicable?
- These are the following instances in which the stamp duty applicable
- Lump-Sum investment into equity and debt fund schemes
- Systematic Investment plans (SIP) into any mutual fund scheme
- Systematic Transfer Plan (STP) for any mutual fund scheme
- Dividend reinvestment transactions
C. How will it be applied?
When you invest in a new mutual fund scheme and fresh units are issued, stamp duty will be exclusive of any other charges such as AMC fee, GST, service charge, transaction charge and the likes.
For dividend reinvestment plans, it will be applicable to the dividend amount after deducting tax deducted at source (TDS). In DRI plans, the dividend is not given to you but it is reinvested back into the scheme and fresh units are issued to you.
D. How will it impact you?
The money you end up spending before investing in a mutual fund scheme will increase albeit by a small amount. A 0.005% charge on your investment is minimal and should not deter you from making a mutual fund investment.
Say your investment amount is Rs 10,00,000
Your stamp duty will be levied at 0.005% of Rs 10 lakh
Stamp Duty= Rs 50
Transaction charge= Rs 100
Effective investment amount= Rs 10 lakh – Rs 150 (100+50)= Rs 9,99,850
NAV= Rs 10
Units allocated= 99,985 units
The stamp duty will be applicable to your investment amount only, exclusive of any other charges.
F. Mutual Fund Charges
Mutual fund investments attract charges at various stages of investments. Here is a quick review of all mutual fund charges that may be applicable to your investment.
Until today, at the time of investment, there were only two charges applicable.
1. Expense ratio: One was expense ratio, which is charged by the asset management company you are invested with. An AMC levies an expense ratio as a charge for managing your money with expertise.
The expense ratio for equity schemes have to be in the range of 1.05 to 2.25% and for debt schemes 0.80 to 2%.
2. Stamp duty: Coming July 1, 2020, stamp duty will also be applicable.
3. Transaction/Service Fee: There could also be a transaction fee or service fee that may or may not be applicable by any third party platform that you may be using.
Entry loads on mutual fund investments were terminated by Sebi long back in 2009.
Charges at the Time of Investment
At the time of redemption
Exit Load: Exit load is capped at 1%. So the returns that you actually end up receiving in your bank accounts will first account for this exit load if you redeem before 1 year.
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