The Stamp duty will be imposed on the purchase of mutual funds, including systematic investment plans (SIPs) and systematic transfer plans (STPs), but not on the redemption of units. The duty will apply to all mutual funds debt as well as equity. However, its impact will be felt the most on debt funds, which are typically held for short periods, as we explain below. The stamp duty will be imposed at a rate of 0.005 per cent on the purchase or switch-in amount. Apart from this, stamp duty will also be imposed on the transfer of mutual fund units such as transfers between demat accounts at 0.015 per cent. Due to its design, the stamp duty is likely to have the most impact on short holding periods of 90 days or less.

The implementation of the stamp duty was initially slated for January but was postponed first to April and then to July. The stamp duty will apply to all kinds of mutual fund purchases, including lump sum, SIP, STP and dividend reinvestment.

For dividend reinvestment, it will be imposed on the dividend amount minus tax deducted at source (TDS). For purchase, it will be imposed on the purchase amount less any other charge such as a transaction charge, a note released by ICICI Prudential AMC explained.

For example, assume your purchase amount is Rs 1 lakh and the transaction charge is Rs 100 making the net purchase cost Rs 1,00,100. The stamp duty will be imposed on Rs 1 lakh and not on Rs 1,00,100. At 0.005 per cent it will come to Rs 5.

Since the duty is imposed on purchase and not redemption, it is akin to an entry load, a note from B&K Securities pointed out. Entry loads on mutual funds were abolished by the Securities and Exchange Board of India (Sebi) in 2009.

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