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If you’re a regular investor in mutual funds, there’s something you should keep in mind going forward. Stamp duty is now levied on mutual fund acquisitions or transfers. In every country, the government imposes taxes so that they can invest in different areas of operation for the development of their country. Stamp duty is a tax imposed by the government on any legal transaction between two parties in a country in order to generate money. Similarly, the Indian government charges stamp duty on investment in any scheme. 

Here’s a quick read to help you understand the imposition of stamp duty on mutual funds and how it affects investors:

What is Stamp Duty in Mutual Fund?

Stamp duty on mutual funds is levied on the purchase or transfer of any fund unit. Stamp Duty is a particular type of tax levied on buying or selling any securities or assets. When a person purchases any real estate property, then stamp duty is applicable at a fixed rate. Similarly, the Government of India has set a stamp duty on the purchase of any mutual fund schemes. The deduction of stamp duty reflects in the bank statement of the investor as well. 

Applicability Of Stamp Duty On Mutual Funds

Before July 2020, stamp duty on mutual funds was not applicable. Currently, it is applicable on the following methods:-

Rate of Stamp Duty On Mutual Funds

The stamp duty on mutual funds came into effect from 1st July 2020. The rate is marginally very low. The government collects 0.005% of the overall purchase amount of any mutual fund scheme as stamp duty. The investors pays a very sheer amount at the time of purchase. The stamp duty charges are applicable to purchase and transfers to Demat accounts. It is applicable on a transfer of the units of a fund between Demat accounts. The rate of stamp duty charged on the transfer of funds is 0.015%.  Furthermore, there is no stamp duty on the redemption of the units of any scheme.

Type of TransactionRate of Stamp Duty
For purchase/ allotment of units0.005%
Transfer of units (levied by the depository)0.015%

How does Stamp Duty on Mutual Funds Works?

On the purchase of a unit of a mutual fund, various charges are applicable. Stamp duty charges on mutual funds is a charge on the number of units. It is an additional charge which includes all other necessary charges like service charges, platform fees, transaction charges, and GST. If there is a dividend reinvestment plan, the stamp duty charges is applicable on the dividend amount after tax deduction at the source. In a dividend reinvestment plan, the dividends are subject to reinvestment in a particular mutual fund scheme. The investors receive an allocation of new units of the mutual fund. When the mutual funds and Alternative Investment Funds (AIFs) are transferred in a physical form to any other party, then it is collected from the transferor. 

Impact of Stamp Duty to Mutual Funds Investors

It is a one-time charge of 0.005% on the investment in any scheme. The impact will be minimal for long-term holdings, but relatively higher for shorter-term holdings. Switching from one fund to another within the same month will result in double stamp duty and significantly reduce returns. As stamp duty is a one-time charge, any redemption within 30 days of an investment period bears the highest impact.

The following table shows the impact on MF returns for 0.005% stamp duty:

Number of days1357306090180360
Impact in % term (absolute/day)0.00500.00170.00170.00070.00020.0001000
Impact in % term (annualized)1.8250000.6083330.3650000.2607140.0608330.0304170.0202780.0101390.005000

According to the table above, the shorter the time horizon is, the greater the impact will be.

Let us consider an example for better understanding.

Illustration 1: Calculation of Stamp Duty

An investor invests Rs 1,00,000 in a particular mutual fund scheme. The stamp duty will be applicable at a rate of 0.005%. Therefore, the total stamp duty will be Rs 5 (Rs 1,00,000*0.005%). The amount invested after the deduction of stamp duty will be Rs 99,995 (Rs 1,00,000 – Rs 5). Accordingly, the units are as per the net amount invested which is Rs 99,995.

Illustration 2: Impact of Duration of Investment

An investor invests Rs. 5,00,000 in a mutual fund scheme. The stamp duty will be applicable at a rate of 0.005%. The stamp duty of Rs 25. As a result, the maximum amount that an investor can invest in a fund is Rs. 4,99,975. (Rs 5,00,000 – Rs 25). If the fund’s NAV is Rs. 100, the number of units available to an investor is 4,999.75 (Rs 4,99,975 / Rs 100). If the investor holds the units for just 1 day then the impact is higher. However, if the investor holds the units for a year then the impact of Rs 25 across these 365 days is very low.

The impact of the stamp duty on the period of holding and the amount of investment is clearly visible through the above example. The impact of these charges on any investment is proportional to the holding period. This means that the impact of stamp duty will be reduced even further if the investment is held for a long period of time. 


Any new investment in a mutual fund calls for stamp duty. The charges are evidently visible on the bank statement of the investor. All transactions entered after July 2020 will be subject to these charges. This may appear to be an additional charge on top of the existing list of charges levied on mutual funds. The impact of this additional charge on mutual funds, on the other hand, is negligible to prospective investors. 

Frequently Asked Questions

Is stamp duty applicable on redemption of Mutual Fund units?

Stamp duty on Mutual funds is levied at the time of acquisitions or sales. Redemption is not subject to this tax because it is neither a transfer, an issue, nor a sale.

Whether switching in Mutual funds attracts stamp duty? 

Even though no physical consideration is paid or ownership is transferred, the issue of new units under the switched scheme would be subject to stamp duty. This is due to the fact that the new units are deemed to have been purchased using the NAV released from the sale of previous units.

Will the stamp duty reflect in the account statement?

Yes, it reflects in the Statement of account for each applicable transaction.

How stamp duty is calculated in case of issuance of Mutual fund Units?

It is levied on the value of units excluding other charges such as service charges, AMC fees, GST, and so on. If the units are issued for Rs.1 crore, then the amount is Rs 500.

How is stamp duty collected on dividend reinvestment in mutual funds?

It will be deducted from the dividend amount (less tax deducted at source, if any). The remaining amount will be used to create the units.

Who will collect the Stamp duty in case of Mutual Fund and AIF transactions (sale, transfer and issue of units in Demat mode) through a recognized Stock Exchange or Depository?

In the case of Mutual Fund and AIF transactions (sale, transfer, and issue of units in Demat mode) conducted through a recognized Stock Exchange or Depository the respective Stock Exchange/authorized Clearing Corporation or Depository is already authorized to collect stamp duty under the Amended Indian Stamp Act and Rules made thereunder.

Who will collect and transfer the Stamp duty to States in case of transactions in units of Mutual Funds and AIFs in Statement of Account/ Physical (non-Demat form)?

To provide for the selection of Stamp Duty on transactions in mutual fund and AIF units in the statement of account/physical (non-Demat) form, RTI and/or STA have been notified. This notification is via Gazette Notification dated 8th January 2020 as a “Depository” for the limited purposes of acting as a “collecting agent” under the said Act and the Rules made thereunder. As a result, for non-Demat Mutual Fund and AIF transactions, the collection of stamp duty by RTAs shall be governed by the provisions of Sections 9A(1)(b) and 9A(1)(c). The transfer of stamp duty to the respective States shall be governed by the provisions of Section 9A. (4). Thus, the transfer of collected stamp duty to respective States/UTs by Registrar and Transfer Agents (RTAs) is also governed by the buyer-based principle, as defined in Section 9A(4), rather than the issuer’s registered office.