What is Stamp-duty and how it increase the trading/investing cost?

General
1

How does it impact the investor?

The impact on long-term investments by retail investor is nominal. Since the stamp duty will be charged as one-time charge, if an investor invests Rs 1 lakh in a mutual fund scheme or in a stock and holds it for two years, he will have to pay a duty of only Rs 5. In fact, it will be marginally lower as the stamp duty is applicable on the net investment value i.e gross investment amount less than any other deduction like transaction charge. There is no duty at the time of redemption.

However, the impact is higher for investors with short-term investment horizon such as banks and corporates who invest in liquid and overnight schemes of mutual funds. While the one time charge is only 0.005 per cent, if an investor has only one-month investment horizon, the annualised cost would rise to 0.06 per cent. In case the investment horizon is one week, the annualised impact cost would be 0.26 per cent and on a one day investment horizon, the cost works out to 1.82%. - So the charge is 0.005 or 1.82%, I can’t understand this phrase!?

2

Charge is 0.005%.

1.82% is Annualized Charge, this is how much a investor will be shelling out if he/she Buys and hold’s the fund only for a day and repeats same process every day for 365 days (Do the maths, 0.005 * 365).

Offcourse nobody is going to Buy and Sell MF in a day and repeat the same process for 365 days, This is just for illustration purposes to show impact of Stamp Duty across different holding periods.

3

Ok, I understand now.

For MFs, is 0.005% charged when buying only or during selling also?

For investing in stocks, will the stamp duty be 0.015% while buying? And no charges while selling the shares?

4

Stamp Duty is charged only on Buy side for both Mutual Fund’s as well as Stocks.

5

those traders who r used to park their money in the “liquidbees” for the temporary short time ; it’ll impact them a lot ! am I right ?

6

Yes. You can check returns impact table here.