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Savings on STT

The cost of merging schemes will come down significantly post June 1, 2013...

Come June 1 and investors can breathe a sigh of relief. The Securities Transaction Tax (STT) which is levied at the time of buying equity-oriented mutual funds from stock exchanges goes away then. Moreover, on redemption of equity funds, the STT will go down from the current 0.25 per cent to 0.001 per cent (See: Changing rates). What this amounts to is that on redemption of Rs 1 lakh, the STT will go down to Re 1 from the current Rs 250.

The move benefits AMCs which plan to merge their fund schemes as the cost of merging schemes will come down significantly. At present, each time such a merger happens, the units of the schemes which are being merged are sold and then new units bought into the scheme into which it is being merged. With this move, AMCs can think of merging schemes far more easily.

As for investors, the change in rates will curtail their losses, especially the double STT that they otherwise pay. Not only do they pay STT on all the transactions in the stock market when a fund buys or sells securities, they also pay STT when an investor sells units from the fund house. In the new scheme of things, investors will only pay STT when the fund manager buys and sells securities.