Last Updated : Jun 30, 2020 04:49 PM IST | Source: Moneycontrol.com

Parking money in MFs for just a week? The new stamp duty will hurt your returns

There will definitely be some impact on investments in overnight funds, which are done for a day or two by large investors

From tomorrow (July 1), you will have to pay a stamp duty of 0.005 per cent when you purchase mutual fund units. All lump-sums, SIPs and STPs used to buy mutual fund schemes would face this levy.

Put simply, when you invest Rs 1 lakh in a mutual funds, the mutual fund will issue you units for Rs 99,995 – Rs 5 will go towards paying the stamp duty. All categories of funds, including equity, debt, gold and hybrid would be subject to the charge.

All investors face the duty

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If you are a large investor and buy units of an exchange traded fund from a fund house, you will have to pay a stamp duty of 0.005 per cent. ETF units bought from the stock exchanges attract a stamp duty of 0.015 per cent.

The stamp duty will also be levied on the units issued to investors, under the dividend reinvestment plan. Any dividends paid will be treated as a consideration and stamp duty will be recovered by the fund house from the dividend amount before issuing units to the investor.

There is no stamp duty payable when you redeem your investments. If an investor opts to convert her physical unit holdings to the demat mode, stamp duty will not be charged.

Stamp duty is computed on the value of the transaction and it is a one-time charge. If you invest for a very short period of time, then the impact will be severe on your return. According to a note released by ICICI Prudential Mutual Fund, the impact of this stamp duty charge of 0.005 per cent in annualized terms stand at 1.82 per cent for an investment made for one day. The same comes down to 0.06 per cent if investments are held for one month.

“There will definitely be some impact on investments in overnight funds, which are done for a day or two by large investors,” says Jignesh Shah, founder of Capital Advisors. “If you invest for the long term and do not churn your portfolio much, then the impact is very low,” he adds.

Long term investors in mutual funds will be least affected by the imposition of the stamp duty.
First Published on Jun 30, 2020 04:46 pm
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