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9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units

Key Takeaways Explain This Topic AI

Stamp duty of 0.005% applies on the issue of mutual fund units, effective from 1 July 2020.

Stamp duty of 0.015% applies on transfer of units between persons.

Stamp duty applies to purchases, switch-ins, SIP and STP instalments and IDCW reinvestment, but not to redemption.

Securities Transaction Tax of 0.001% applies on redemption of equity-oriented units and on their sale on an exchange.

No STT applies to units of schemes that are not equity-oriented.

Last updated: August 2026

Stamp Duty on Mutual Fund Units

Since 1 July 2020 , stamp duty applies to transactions in mutual fund units under the amended Indian Stamp Act framework.

  • Transaction Rate
  • Issue of units 0.005% of the amount
  • Transfer of units from one person to another 0.015% of the consideration
  • What counts as an issue

Stamp duty at 0.005% applies whenever units are created and allotted , which is a wider set of events than investors expect:

  • Lump-sum purchases
  • Every systematic investment plan instalment
  • Every systematic transfer plan instalment into the receiving scheme
  • Switch-ins — the purchase leg of a switch
  • IDCW reinvestment — units issued against a reinvested distribution
  • What does not attract stamp duty

Redemption. No units are issued, so no duty arises.

Switch-outs , considered separately from the switch-in leg — the duty attaches to the units being created.

IDCW payout in cash, since no units are issued.

How it is charged

Duty is deducted from the investment amount before units are allotted.

Worked example. An investor invests INR 1,00,000 at an NAV of INR 25.00. Stamp duty = 0.005% of 1,00,000 = INR 5.00

  • Net investible = 1,00,000 - 5.00 = INR 99,995.00
  • Units allotted = 99,995.00 / 25.00 = 3,999.80 units

The amounts are small — INR 5 on INR 1 lakh — and the exam tests whether you know the rate and which transactions attract it rather than expecting elaborate computation.

The transfer rate

The 0.015% rate applies to a transfer between persons , such as an off-market transfer of dematerialised units or transmission arrangements involving a change of ownership. It does not apply to ordinary purchase and redemption with the fund, which is why most investors never encounter it.

Securities Transaction Tax

Securities Transaction Tax (STT) is levied on transactions in specified securities, and its application to mutual fund units is narrow and asymmetric.

  • Transaction STT Payable by
  • Redemption of equity-oriented units to the mutual fund 0.001% Seller (unitholder)
  • Sale of equity-oriented units on a recognised stock exchange (delivery) 0.001% Seller
  • Purchase of units from the mutual fund Nil —
  • Any transaction in units of a non-equity-oriented scheme Nil —

Three features carry the examination weight:

STT applies only to equity-oriented schemes. Redeeming a liquid fund, a corporate bond fund or a gold fund of funds attracts no STT at all.

STT is a sell-side charge on units. Buying units of an equity-oriented scheme attracts no STT.

STT paid is not deductible in computing capital gains. It reduces the amount received but does not reduce the taxable gain.

Worked example. An investor redeems equity-oriented units worth INR 5,00,000. STT = 0.001% of 5,00,000 = INR 5.00

Why STT matters beyond its size

The amount is trivial, but payment of STT is a condition for the concessional treatment of equity-oriented units under sections 111A and 112A. The 20% short-term rate and the 12.5% long-term rate with the INR 1.25 lakh exemption are available because the transaction is STT-paid. This is the structural reason the tax exists on units, and it is the point an exam question is most likely to be built around.

Comparing the Two

  • Stamp duty STT
  • Levied on Issue and transfer of units Sale or redemption of equity-oriented units
  • Rate 0.005% issue; 0.015% transfer 0.001%
  • Side Buy side, on units created Sell side
  • Scheme types covered All schemes Equity-oriented only
  • Applies to SIP instalments Yes , each instalment Not applicable
  • Deductible against capital gains No No

The single sentence worth memorising: stamp duty is charged when units are created, on every scheme; STT is charged when equity-oriented units are sold.

Effect on Systematic Investors

Because stamp duty attaches to each instalment, an investor running a monthly SIP pays it twelve times a year. On a INR 10,000 monthly SIP that amounts to INR 0.50 per instalment, or INR 6 a year. It is disclosed in the account statement and occasionally prompts a query, and the honest answer is that it is a statutory levy of negligible magnitude that does not merit changing investment behaviour.

A Switch, Worked End to End

A switch is the transaction where both levies and the capital gains rules meet, so it repays being worked through in full.

Facts. An investor switches INR 3,00,000 from an equity-oriented scheme, held 14 months, into a debt scheme of the same fund house. There is no exit load remaining. The cost of the units being switched out was INR 2,40,000. Switch-out leg (equity-oriented scheme)

  • Redemption value = INR 3,00,000
  • STT at 0.001% = INR 3.00
  • Long-term capital gain = 3,00,000 - 2,40,000 = INR 60,000
  • Taxed under section 112A after the annual exemption
  • Switch-in leg (debt scheme)
  • Amount received into scheme = INR 3,00,000
  • Stamp duty at 0.005% = INR 15.00
  • Net invested = INR 2,99,985

The two levies together come to INR 18. The capital gains charge is the material consequence , and it is the one investors do not anticipate, because the money never left the fund house and no cash was received. A switch feels administrative and is treated as a sale.

Exchange-Traded Units

Where units are bought and sold on a recognised stock exchange rather than with the fund — exchange-traded funds, or units held in demat and sold through a broker — STT applies on the sale of equity-oriented units at 0.001% , payable by the seller, in the same way as a redemption to the fund. Purchases of such units attract no STT.

Three Traps Worth Rehearsing

Stamp duty is not confined to purchases. SIP instalments, STP instalments, switch-ins and IDCW reinvestment all create units and all attract it.

STT is not levied on debt schemes at all , however large the redemption.

Neither levy is deductible in computing capital gains, so neither reduces the tax payable.