NEW DELHI: From July 1, the Government of India has imposed a Stamp duty of 0.005 per cent on all transactions carried out by mutual funds, systematic investment plans, and daily stock traders. While experts claim that the move will only largely impact businesses and big investors, there are still a few things it will change for the run-of-the-mill retail participant.
For one thing, those who are planning to invest in mutual funds will now be getting a lesser number of units for the same investment. So when you buy units, the stamp duty will be auto-deducted. For example, if you intend to invest Rs 1,000 in a mutual fund at a net asset value (NAV) of Rs 10 then, instead of getting 100 units, you will now only get 99.995 units due to the stamp duty deduction.
This will be the case for dividend reinvestment plans too, in which dividend reinvested in buying fresh units will attract stamp duty. The duty will also be applicable for the transfer of mutual fund units, which will be levied at 0.015 per cent. But no such duty is applicable on redemption or sale of units. Experts claim that this amount is too little to make a significant impact for the small investors.According to Archit Gupta, founder and CEO, ClearTax, if the actual amount invested in case of SIP is Rs 10,000 a month, the stamp duty stand at just Rs 0.5 on each monthly investment and Rs 6 for the entire year.
Also, for an investor investing Rs 1.5 lakh in an ELSS scheme, the stamp duty they will have to pay will stand at just Rs 7.50. However, this levy is set to have a rather large impact on big investors, businesses and corporates who keep their money in short term liquid instruments, especially for less than 30 days. For example, in the case of a liquid fund which is generating 3.5 per cent returns, with a seven-day holding period, the return will now fall to 3.24 per cent.
With a 30-day holding period, returns will stand at 3.44 per cent after accounting for the stamp duty, which will diminish returns for many corporates who park their money in liquid funds. The stamp duty has been imposed through an amendment in the Indian Stamp Act, 1899 via Finance Act 2019. It requires the collection of stamp duty on all securities market instruments, including mutual funds. Originally to come into effect from January 9, the government had postponed it due to the pandemic.