As per the reports, From 1st July, all shares and mutual fund purchases will attract a stamp duty of 0.005% and any transfer of security (MF units) will attract a stamp duty of 0.015%.
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How Did This Happen?
Last year, the government had introduced changes to the Stamp duty Act by implementing a uniform rate of stamp duty on trading of shares and commodities.
According to these new standards, all categories of mutual funds (except for ETFs) will attract stamp duty for the first time.
Also, the shares purchased by individuals at stock exchanges were charged stamp duty at different rates by respective states.
Earlier, the execution of the same was scheduled on January 9, 2020, further it was extended to April 1, 2020 and finally it got extended to July 1, 2020.
How Does It Work?
According to the new rules, the stamp duty will be applicable on all the transactions that include shares, debt instruments, commodities and all categories of mutual fund schemes.
In case of mutual funds, this will be applicable on all fresh purchases, which includes the fresh monthly purchases in previously registered Systematic Investment Plans.
Further, this will also be applicable if investors switch from one scheme to another and also in case of dividend reinvestment transactions.
According to this change, the transfer of units from one demat account to another, including market/off-market transfers, will also attract stamp duty.
How Would This Affect?
Basically, its impact on long-term investments by retail investors is nominal as the stamp duty will be charged as a one-time fee, if the investor invests Rs 1 lakh in a mutual fund scheme or in a stock and further holds it for two years, then he will be charged only Rs 5.
Moreover, these charges will be marginally lower as the stamp duty is applicable on the net investment value i.e gross investment amount less than any other deduction like transaction charge.
On top of that, at the time of redemption, there won’t be any duty charges.
In case of short term investors, it’s another story, since, the short-term investment horizon such as banks and corporates who invest in liquid and overnight schemes of mutual funds.
In this case also, the one time charge is only 0.005%, but if the investor has only one-month investment horizon then the annualised cost would rise to 0.06%.
While if the investment horizon is one week, the annualised impact cost would be 0.26% and for the one day investment horizon, the cost will be 1.82%.
Additionally, this will impact the share purchase by individuals in several states where the rates earlier were lower than the new uniform rate of 0.005%.
How Does the Government Get Benefited By This?
According to data, the mutual fund industry mobilised aggregate funds of over Rs 188 lakh crore in the financial year 2019-20.
Where a big portion of that earned through the overnight funds or liquid funds.
So, a 0.005% stamp duty on this amount could generate Rs 940 crore of revenue.
It is expected that the industry could generate Rs 190 lakh crore or higher, it will generate revenues of nearly Rs 1,000 crore for the government from mutual fund transactions itself.
While the retail MF investors should not worry about it as the fee is nominal but of course they should be careful in selection of the right investment category.
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