Stamp Duty on Mutual Funds

Stamp duty is a one-time fee you pay when you buy units of mutual funds. When you buy a mutual fund, the government takes a tiny fee called a stamp duty, which is 0.005% of the total amount you invest.
Stamp Duty on Mutual Funds
3 min

Stamp duty is a small, one-time fee you pay when you buy mutual fund units. Its impact is smaller the longer you hold your investment. However, for short-term investments, the impact is relatively higher. The stamp duty rate is 0.005% of the purchase value, which is a very small amount.

All regular investors in mutual funds are now aware of the concept of stamp duty on mutual funds and this is levied when mutual funds are acquired or transferred. Stamp duty like other government-imposed taxes is a tax on any transaction that generates money. Similarly, stamp duty in mutual fund is charged by the Central government on investments in any mutual fund scheme.

What is Stamp Duty on Mutual Funds?

The stamp duty on mutual funds is payable when any fund’s units are purchased or transferred or when assets or securities exchange hands. For instance, in a real estate purchase, stamp duty is fixed. In the case of mutual funds, the stamp duty deduction reflects in the investor’s bank statement as well.

Rates of Stamp Duty on Mutual Funds

Prior to July 2020, there was no mutual fund stamp duty. However, it has become applicable on options for dividend reinvestment, Systematic Transfer Plans (STPs), one-time lump sum investments, and Systematic Investment Plans (SIPs).

The stamp duty on mutual funds is at 0.005% on the mutual fund’s net purchase amount that the investors pays when buying a mutual fund’s units and transferred to his Demat account. It also applies on a transfer of units of a fund between two Demat accounts and the rate is 0.015%. However, no stamp duty in mutual fund is levied when the units of a scheme are redeemed.

Furthermore, when investments are made in a new mutual fund with fresh units being issued, the stamp duty is exclusive of other charges like GST, AMC fee, transaction charge and service charge.

Dividend reinvestment plans

In the case of dividend reinvestment plans, stamp duty is applicable on the amount of dividend earned after deducting TDS or tax deducted at source. In a DRI plan, the investor does not receive the dividend in hand; rather, it is ploughed back into the said scheme with fresh units being issued.

Charges for Mutual Funds

Investments in mutual funds attract myriad charges at various levels of investments. Previously, there was the expense ratio that the asset management company charged the investor as a fee for managing his funds; and a service/transaction fee that was payable to a third-party platform being used by the investor.

Impact of Stamp Duty on Mutual Funds on Investors

The one-time charge of 0.005% has an impact on long-term holdings; however, it is relatively higher on short-term holdings. Moreover, fund switching within one month results in 0.01% stamp duty, which is double the current rate and reduces returns significantly. Additionally, a redemption within a 30-day period of an investment has the maximum impact.

If you are an investor and want to start your investment journey, you may visit the Bajaj Finserv Mutual Fund platform to learn more about mutual funds and SIPs. Feel free to make use of their Lumpsum calculator and SIP calculator to calculate your financial goals better.

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Frequently asked questions

What is stamp duty on investment?

Stamp duty on investment is a tax levied when certain assets like bonds, real estate, or stocks are bought. The exact stamp duty rate and nature of the stamp duty varies on the investment type and jurisdiction of the investment.

What is the stamp duty charges on SIP investments?

In India, stamp duty in mutual fund transactions stands at a flat rate of 0.005% whether it is a SIP or lump-sum investment.

Who pays stamp duty in India?

In India, a property or asset’s buyer pays the stamp duty, according to the provisions of the Indian Stamp Act, 1899

What is the tax on mutual funds?

Tax on mutual funds may vary between 10% and 20% depending on specific factors such as the mutual fund type, holding period, and investor tax status.

Is stamp duty included in cost of investment?

Yes, stamp duty is included in the investment cost when it comes to calculating the net expenses for acquiring the asset. Hence, when an asset like bonds, stocks, or real estate is purchased, the stamp duty on the transaction becomes a part of the net cost of the asset’s acquisition.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.