Stamp duty on mutual funds is a central levy of 0.005% charged on the value of units when they are bought. It comes from the Indian Stamp Act 1899 as amended by the Finance Act 2019, made operative for mutual funds by Ministry of Finance notifications dated 30 March 2020 and effective from 1 July 2020, which applied a single uniform stamp duty to unit creation across the country for the first time. The duty is deducted from the money before units are allotted, so an investor is credited units worth a shade less than the amount paid in rather than being sent a separate bill. Moving units from one demat account to another is charged at the higher rate of 0.015%.
The 0.005% applies to every fresh creation of units, so a lumpsum purchase, each SIP installment, a switch into a scheme and a dividend reinvestment all carry it. Redemption, a switch out of a scheme, a systematic withdrawal plan and a dividend payout create no new units and carry no stamp duty at all. Because it is a one-time charge at entry rather than an annual one, its drag shrinks the longer the units are held. Over a single day the 0.005% works out near 1.8% annualised, yet across a full year it is back to the headline 0.005%, so it weighs on very short-term money far more than on a long-term holding.
A ₹10,00,000 purchase carries ₹50 of stamp duty at 0.005% and a ₹5,000 SIP installment carries about ₹0.25. The duty is taken out before allotment, so the units credited are worth the investment minus that small amount.
Where It Shows Up #
Stamp duty shows up on the transaction confirmation and the account statement for every purchase, switch in and reinvestment, sitting beside the expense ratio and any exit load as one of the standing costs of owning a scheme. FinSet scheme pages carry the running cost figures for the same funds.
The Source #
The Indian Stamp Act 1899 as amended by the Finance Act 2019 (Part I of Chapter IV), brought into force for mutual funds on 1 July 2020 by Ministry of Finance notifications dated 30 March 2020. The linked Press Information Bureau release of 30 June 2020 confirms that commencement date and states that all mutual fund transactions are liable for stamp duty. It does not carry the rates themselves. Those sit in the amended Schedule I and are reproduced in fund house stamp duty disclosures. Press Information Bureau, 30 June 2020.
Related on FinSet #
This entry is general education, not personal advice or a recommendation of any scheme. Mutual fund investments are subject to market risks. Read all scheme related documents carefully.