Share
stamp duty on mutual funds

Investor Alert: Beginning 1st July 2020, a stamp duty of 0.005% would be levied on all mutual fund purchase transaction, in accordance with the orders issued by the Government of India.

Bottom line: If you invest in mutual funds for overnight or small durations such as few days to few weeks, then yes, you will be impacted!

BUT, analysis by team LXME shows that short term to long term mutual investments can continue investing strongly and not worry because the impact is extremely negligible!

The shorter the holding period, the greater will be the impact on returns on your investments. While, it definitely is a reason to worry for large investors, who park their idle cash for a very short period of time, ranging from few days to a couple of weeks, our own analysis shows, short to long term investors have nothing to worry.  

Now some deep-dive details for you to know & throw in your conversations (Heck! All of us want to be the smart one in the room, isn’t it ?)

And what transactions would attract this stamp duty??

Purchases include lump sum, SIP, Switch-in and Dividend Reinvestment transactions. All categories of mutual fund schemes (including Exchange Traded Funds) would be covered under stamp duty charges. However, there would be no stamp duty on any other mutual fund transaction, except for purchase transactions mentioned above.  

And how does this impact the Mutual Fund Investor?  

This stamp would impact the number of units of mutual funds issued to the investor. The unit allotted would be now on the invested amount less the stamp duty applicable.  

Let’s look at an example to understand how will this stamp duty be charged?  

Invested Amount: ₹ 10,000 Purchase amount = Rs.10000/- ; Stamp Duty = Rs. 0.49/- (Stamp duty calculation = 10000/100.005 * 0.005 = 0.49)   In the given scenario Units will get allotted for Rs. 9999.51, Purchase amount column in the report will have the value of Rs. 9999.51 and Stamp Duty column of Rs. 0.49.  

But wait, it also impacts investor returns. See “HOW”  

For the ₹ 10,000 invested in a mutual; fund with an assumed annual return of 5%, we did our own quick analysis.

3-2

Investors with a very short duration of 1 day to 30 days, would be the most affected:

  • Parking your funds for 1 day would mean losing out 1.79% of returns in annualised terms.
  • This impact on returns reduces and becomes negligible as the duration extends beyond 30 days (0.06%) and 365 days (0.01%).

So, worry not dear Short term to long term investor, your money is safe & growing and the 0.005% is a teeny weeny deduction on your large returns.

other blogs

Smart Money October 5, 2022

10 Demons To Kill This Dussehra

Dusshera is one of the major Hindu festivals that also symbolizes the end of Navratri. The festival is celebrated as the victory of Lord Rama over Ravana. It also marks the triumph of Goddess Durga over the demon Mahishasura.  So this festival symbolizes killing demons or destroying negative and bad habits we have in our […]

By Team LXME
Share
Smart Money September 27, 2022

Hacks to plan for a budget-friendly vacation!

In today’s world, everyone’s life is full of adventure, so there needs to be some relaxation along with fun in life. So, in order to release all day-to-day stress, one needs a break from their daily routine to refresh our mind. One such time is when Raj and Simran decided they needed a break from […]

By Team LXME
Share
Smart Money September 6, 2022

How To Invest & Build In Emergency Funds

Radhika: I am facing financial stress as there is a sudden unfortunate medical emergency. Apurva: Didn’t you have any emergency funds for such a crisis? Radhika: No! What do you mean by the emergency fund? You know what, I  had to dig out money from my long-term investments. I am worried about how to tackle […]

By Team LXME
Share