Lesson 5 of 8 · Taxation of Mutual Funds

Stamp Duty on Mutual Fund Transactions

Stamp duty of 0.005% is charged when mutual fund units are bought from a fund. This lesson explains which transactions carry it, how it reduces the units allotted without changing the NAV, and how it differs from securities transaction tax.

Fact-checked 8 October 20263 practice questions in the game

What it is

Stamp duty is a levy on the purchase of mutual fund units from a fund. It has applied since 1 July 2020 at 0.005% of the amount, and the same rate applies across scheme types.

The fund does not keep the money. The duty is collected on the investor's behalf and passed on to the state government.

Which transactions carry it

The duty applies whenever units are bought from the fund: a lump-sum purchase, every SIP instalment, a switch-in, every transfer in under a Systematic Transfer Plan, and units allotted when IDCW is reinvested.

It does not apply when units leave the holding. A redemption, a switch-out and a withdrawal under a Systematic Withdrawal Plan carry no stamp duty. A switch therefore bears duty on one leg only: the purchase in the scheme being entered.

How it is collected

The investor does not pay the duty separately. It is deducted from the amount invested, and units are allotted on what remains: units = (amount − stamp duty) ÷ NAV.

The NAV itself does not change. The investor gets slightly fewer units at the same NAV. This is why it is not accurate to say the whole purchase amount is invested, even though there is no entry load.

The duty is charged once, at purchase, whatever the holding period. On money invested for a single day it is the same number of rupees as on money held for years.

Not the same as securities transaction tax

The two levies are often confused because both are tiny percentages. Stamp duty is 0.005%, charged on purchase for every type of scheme. Securities transaction tax is 0.001%, charged when units of an equity-oriented fund are redeemed (rate as of October 2026).

So units of an equity-oriented fund bear stamp duty when they are bought and securities transaction tax when they are redeemed.

Rules at a glance

Stamp duty on units bought from a fund0.005% of the amountIndian Stamp Act, 1899, as amended; since 1 July 2020

Redemption, switch-out, withdrawalNo stamp dutyIndian Stamp Act, 1899, as amended

Units allotted(Amount − stamp duty) ÷ NAVThe NAV is unchanged

Securities transaction tax on redeeming equity-oriented units0.001%A separate levy; rate as of October 2026

Illustration

Duty on one leg of a switch (illustrative)

Ritu runs a SIP of ₹5,000 a month. Each instalment bears stamp duty of ₹5,000 × 0.005% = ₹0.25, which is ₹3.00 over twelve instalments.

She then switches ₹2,00,000 from one scheme to another. The switch-out carries no duty. The switch-in is a purchase, so the duty is ₹2,00,000 × 0.005% = ₹10, and units in the new scheme are allotted on ₹1,99,990.

Worked example

Units allotted after stamp duty (illustrative)

Assumed figures, for arithmetic only: a lump-sum purchase of ₹50,000 at a NAV of ₹40.
0.005% as a decimal is 0.00005. Stamp duty = ₹50,000 × 0.00005 = ₹2.50.
Amount on which units are allotted = ₹50,000 − ₹2.50 = ₹49,997.50.
Units allotted = ₹49,997.50 ÷ ₹40 = 1,249.9375.
Without the duty the units would have been ₹50,000 ÷ ₹40 = 1,250. The difference of 0.0625 units is worth 0.0625 × ₹40 = ₹2.50.

Result. The investor is allotted 1,249.9375 units at the unchanged NAV of ₹40; the ₹2.50 of duty shows up as 0.0625 fewer units.

Key points

Stamp duty on mutual fund units is 0.005% of the amount, in force since 1 July 2020.
It applies to lump sums, SIP instalments, switch-ins, Systematic Transfer Plan transfers in and reinvested IDCW.
Redemptions, switch-outs and Systematic Withdrawal Plan withdrawals carry no stamp duty.
The duty is deducted from the amount invested, so fewer units are allotted at the same NAV.
It is collected on the investor's behalf and passed on to the state government.

Common misunderstandings

Stamp duty does not lower the NAV: the NAV is unchanged, and the duty shows up as slightly fewer units.
0.005% is not 0.005 as a decimal: it is 0.00005, so the duty is ₹0.50 on ₹10,000 and ₹5,000 on ₹10 crore.
The 0.001% figure is not stamp duty: it is the securities transaction tax on redeeming equity-oriented units.
A SIP is not charged duty only once: each instalment is a purchase and bears the duty.

Questions people ask

Is the rate different for equity and debt schemes?

No. The same 0.005% applies across scheme types for units bought from the fund.

Is stamp duty charged again on redemption?

No. It applies only when units are bought.

How much is the duty on ₹10 crore?

₹10,00,00,000 × 0.00005 = ₹5,000, or ₹500 for each crore; units are allotted on ₹9,99,95,000.

What this lesson relies on

Indian Stamp Act, 1899, as amended through the Finance Act, 2019 — stamp duty on mutual fund units from 1 July 2020
Fund-house tax reckoners for financial year 2026-27 (secondary source for the securities transaction tax rate)

This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.