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Stamp duty on mutual funds

Date: 02 July 2020 Tags: Miscellaneous


The government had introduced changes to the Stamp duty Act last year by introducing a uniform rate of stamp duty on trading of shares and commodities.



The stamp duty will be applicable on all transactions, including shares, debt instruments, commodities and all categories of mutual fund schemes.



  • All shares and mutual fund purchases will attract a stamp duty of 0.005 percent and any transfer of security (MF units) will attract a stamp duty of 0.015 percent.

  • While all categories of mutual funds (except for ETFs) will attract stamp duty for the first time, shares purchased by individuals at stock exchanges were charged stamp duty at different rates by respective states.

  • As for mutual funds, it will be applicable on all fresh purchases, including the fresh monthly purchases in previously registered Systematic Investment Plans.

  • It will also be applicable if investors switch from one scheme to another and also in case of dividend reinvestment transactions.

  • Transfer of units from one demand account to another, including market/off-market transfers, will also attract stamp duty.


Impact on investors

  • The impact on long-term investments by retail investors is nominal. Since the stamp duty will be charged as a one-time charge, if an investor invests Rs 1 lakh in a mutual fund scheme or in a stock and holds it for two years, he will have to pay a duty of only Rs 5. 

  • However, the impact is higher for investors with short-term investment horizons such as banks and corporates who invest in liquid and overnight schemes of mutual funds.

  • While the one-time charge is only 0.005 percent, if an investor has only a one-month investment horizon, the annualised cost would rise to 0.06 percent.

  • In case the investment horizon is one week, the annualised impact cost would be 0.26 percent and on a one-day investment horizon, the cost works out to 1.82%.

  • It will also impact share purchases by individuals in several states where the rates earlier were lower than the new uniform rate of 0.005 percent.


Benefits to the government

In the financial year 2019-20, the mutual fund industry mobilised aggregate funds of over Rs 188 lakh crore.  If the industry continues to mobilise funds to the tune of Rs 190 lakh crore or higher, it will generate revenues of nearly Rs 1,000 crore for the government from mutual fund transactions itself.