Bourses slash STT with effect from June 1

Transaction fees nil on purchase of MF equity units, while on selling it stands at 0.001%

In a move that would benefit equity mutual fund investors, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) today slashed Securities Transaction Tax (STT) on buying and selling of equity-oriented units.

Effective from June 1, all transactions on the exchanges involving sale of equity mutual fund (MF) units will attract STT of 0.001 per cent against the current 0.1 per cent. While buying, investors would not have to pay any STT, currently 0.1 per cent.

The exchanges’ decision is in line with the Finance Act, 2013, wherein the finance minister had proposed cuts in STT in the Union Budget. The proposal received Presidential assent on May 10, 2013.

India’s MF sector has welcomed the implementation of the said proposal three months after it was proposed. “This is a positive move for the industry and investors, in particular, will get the benefits,” says Jimmy Patel, chief executive officer of Quantum Mutual Fund.

There are two instances of STT charges when redemption happens from equity schemes. First, when the funds sell units and second, when investors redeem. Though industry executives say it will give a fillip to equity investments as security transaction fees are now almost zero, they are quick to add that while redeeming, investors do not necessarily calculate how much fees s/he is paying.

At present, the sector manages around Rs 1.75 lakh crore in equity assets comprising a little over 20 per cent of the sector’s overall assets under management.

STT was introduced in 2004 and is levied on the sale and purchase of equities. Apart from the equity mutual fund, sale of futures in securities will also be charged lower STT at 0.01 per cent against the current 0.017 per cent, a decline of around 40 per cent.

However, in the case of buying and selling of equity shares, where the contract for the purchase and sale is settled by the actual delivery or transfer of such share, the prevailing STT of 0.1 per cent will continue without change. Similarly, cases where equity share or equity-oriented fund units are sold (the contract for the sale of such share or unit is settled otherwise than by actual delivery), the seller will continue to pay 0.025 per cent as STT.

On sale of an option in securities too, there are no changes to the prevailing transaction rates, which would continue to be 0.017 per cent. And, in case the option is exercised, the buyer would end up paying the same fees of 0.125 per cent.