June 26, 2025
4 mins read
Stamp duty on mutual fund investments is a statutory charge levied on the purchase and transfer of mutual fund units in India. The stamp duty was introduced on 1 July 2020, at 0.005% on purchases and 0.015% on the transfer of units from one demat account to another.
While the numbers are small, the cumulative effect over long-term investing can add up. As a result, it is useful for an investor to know this charge is there in order to clarify to them the total costs associated with their mutual fund transactions.
Stamp duty on mutual fund investments is a one-time charge levied on the purchase of mutual fund units. This includes lump sum investments, SIPs, STPs, and dividend reinvestment transactions. The duty applies to both physical and Demat holdings, ensuring uniformity in taxation.
The mutual fund stamp duty rate is 0.005% for purchasing units. For transfers between Demat accounts, the applicable rate is 0.015%. The charge is deducted before unit allocation, meaning the net investment amount is slightly lower than the actual invested sum.
For instance, if an investor puts ₹1,00,000 into a mutual fund, the applicable stamp duty on mutual fund transactions would be ₹5 (0.005%). Consequently, ₹99,995 would be available for unit allocation, ensuring transparency in deductions.
This duty does not apply to redemptions or switch-outs, as it is only levied on fresh unit issuance. Understanding the implications helps investors make informed decisions while planning their mutual fund stamp duty costs.
Think of stamp duty as the government’s way of charging a fee every time you acquire mutual fund units. It does not matter whether you are putting money into an equity fund, a debt scheme, or an ETF—the rule applies. The charge is added upfront, deducted from the total investment amount, not on exit.
Which means, if you planned to put in Rs.1,00,000, a small fraction quietly gets shaved off before units are allotted. The percentage is tiny, but when you look at the compounding game of investing, even tiny differences in starting capital can matter over decades.
Applicable on fresh purchases of mutual fund units.
Deducted on mutual fund investments through lump sum.
Charged on Systematic Investment Plan instalments.
Levied on dividend reinvestment transactions too.
Transfer of units between Demat accounts included.
Applies to mutual fund units purchased offline.
Relevant for Exchange Traded Fund transactions.
Imposed when units are bought via switch-ins.
Required for mutual fund purchases through platforms.
Present in both equity and debt mutual funds.
Here is where most people shrug it off: “It is so small, why worry?” True, in absolute numbers it does not look scary. For instance, on Rs.1,00,000, the deduction is just Rs.5. But here is the catch—it reduces your initial investment corpus, which means your compounding journey starts slightly lower than you imagined.
Long-term investors barely feel the pinch because years of growth overshadow that minor entry cut. But for ultra-short-term traders or those chasing quick arbitrage, it can eat into already thin margins. So yes, while the percentage is negligible, its effect depends entirely on your investment horizon and style.
Expense ratio covers management, administration, and fund operation costs.
Exit load charged if you redeem units before lock-in period.
Securities Transaction Tax applies to equity-oriented fund redemptions.
Fund management fee compensates professionals handling portfolios daily.
Transaction charge may apply on investments via distributors.
GST applicable on services provided by asset management companies.
Custodian fee covers safekeeping of fund assets securely.
Stamp duty on mutual funds is one of those charges you cannot avoid, but you can understand and plan around. It is a regulatory cost, barely noticeable for long-term investors but something short-term players should factor in. Personally, I see it as the toll tax of investing—small, routine, and not worth stressing over, but still better to know it is there before the journey begins. In the bigger picture, mutual funds remain one of the most efficient ways to grow your wealth in India, and stamp duty does not change that truth. Awareness is the only real cost here.
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As of July 1, 2020, a stamp duty of 0.005% is levied on mutual fund purchases, including SIPs and STPs. Transfers of mutual fund units between Demat accounts incur a stamp duty of 0.015%.
Yes, both Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) are subject to a stamp duty of 0.005% on the investment amount.
Yes, stamp duty applies to dividend reinvestment in mutual funds at a rate of 0.005% on the reinvested dividend amount.
Yes, transferring mutual fund units between Demat accounts is subject to a stamp duty of 0.015% of the transfer value.
Stamp duty is a one-time charge on mutual fund purchases. Its impact diminishes over longer investment horizons, making it more significant for short-term investments.
Stamp duty does not apply to mutual fund redemptions, switch-outs, or dividend payouts, as these transactions do not involve the issuance or transfer of units.
In your mutual fund statement, the stamp duty amount is typically deducted from the investment amount before unit allocation and is reflected accordingly.
Yes, stamp duty is applicable to both physical and Demat mutual fund units at the same rates.
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