New Stamp Duty rule for Mutual Funds Investment explained

The Government of India has brought into effect certain amendments to the Indian Stamp Act as part of the Finance Act 2019.

Originally the plan was to be executed from January 9, 2020 which was then postponed to April 2020 and then eventually it came into effect from July 1, 2020.

In simple terms it means that a stamp duty of 0.005% will be deducted on the investment amount of mutual funds for any transaction executed on or after July 1 2020.

mutual funds

This would be applicable on:

  1. Purchases
  2. Dividend Reinvestments
  3. Systematic Investment Plan (Inclusive of Live SIP’s)
  4. Systematic Transfer Plan
  5. Equity as well as Debt schemes

A simple illustration to understand this better

Application Amount: 1,00,000

Stamp Duty: 0.005%

Stamp Duty Amount: 1,00,000 X 0.005% =Rs 5

Net Investment Amount (After deducting Stamp Duty) = 9,99,995

As can be seen by the above illustration, if you have a long term horizon then there’s not much to lose sleep over.

Below are some queries addressed in relation to this new rule affecting mutual funds.

Will this be applicable on running/old mutual fund sips?

Yes but only for instalments on and after 1st July 2020, meaning let’s say your mutual fund SIP began from 05th January 2020 then stamp duty will be applicable from 05th July 2020.

This will be applicable for each SIP instalment and not just for the one being deducted during July 2020.

What about Lumpsum investments?

As explained in the illustration above, stamp duty will be deducted only once for lumpsum investments in mutual funds.

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Is this new rule applicable only for equity mutual funds or even debt mutual funds?

This new rule is applicable on all categories of mutual funds so yes, even debt mutual funds.

How does the new rule apply to Systematic Transfer Plans?

In this case the stamp duty will be deducted both when you invest into the debt fund/liquid fund as well as when the STP begins into the principal fund (for each instalment).

Let’s understand this better with an illustration:

Amount to be invested


No of instalments


Per instalment amount



In such a scenario stamp duty on your mutual fund investment will be deducted as follows:

Step 1

1,00,000 X 0.005% = 5

The above calculation is for when you invest in a debt/liquid fund to eventually transfer in to your principal equity fund.

Step 2

No of instalments is 10 and amount per instalment is 10,000 so that would mean 10,000 X 0.005% = 0.5

0.5 X 10 (no of instalments) = 5

So the total stamp duty paid in the above STP for your mutual fund investments would therefore be Rs. 10

Will the new rule apply on Redemptions too?

No, new stamp duty is applicable only on purchases.

What about Dividend reinvestments?

Yes, new stamp duty will be applicable on dividend reinvestments because each dividend reinvestment instalment is considered as fresh purchase.

What about scheme switches?

Yes because the scheme to which the amount is transferred is considered as a fresh purchase.

This does not imply double taxation because the scheme from which the amount is transferred is considered as redemption (there is no stamp duty on redemption) and the scheme into which the amount is transferred is considered as purchase.

Do I have to pay the stamp duty separately?

No, the stamp duty amount will be deducted directly by the RTA (CAMS, Karvy etc.) in question.

As can be gathered by the various illustrations, the stamp deductions on your mutual fund investments in the long run do not make much difference so there’s no need to lose sleep over it.


What kind of investors should worry?

  1. Investors who park huge sums in debt/liquid funds for a couple of days/weeks or months.
  2. This is because your money is parked for a very short time horizon without the growth expectations of an equity fund.
  3. Investors who invest based purely on past returns, star ratings, without any thorough research, etc.
  4. Constant redemptions and investments not only increase your stamp duty but also affects your taxes and takes away from you the privilege of compounding.
  5. Investors with a very short time horizon in equity mutual funds.

All in all this new rule should not be something that you should waste time pondering over. In the long run it is a negligible amount that when invested well is taken care of by your valuations. 

Keep in mind that stamp duty is applicable only on the purchase of mutual funds and not on redemptions. 

However if you are one to invest based on random advice, past performances and without any proper planning or guidance then you have another added motivator to get your house in order.


For portfolio enquiries, email us with your doubts at

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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