Budget 2013: Reduction in STT on ETFs of mutual funds to cut cost, increase volumes

MUMBAI: The Security Transaction Tax (STT), on mutual fund redemption of Exchange Traded Fund (ETF) scheme has been reduced to Re 1 from Rs 250 per lakh, and on mutual fund non-redemption of ETF scheme the STT has reduced to Re 1 from Rs 100 per lakh.

An exchange traded fund (ETF) tracks an index, a commodity or a basket of assets like an index fund, but trades like an equity on an exchange. The price changes throughout the day as they are bought and sold.

The proposed reduction comes as a welcome relief as it will reduce overall cost. “The STT reduction will increase volumes in Exchange Traded Fund schemes, the Government nod to allow pension funds to invest in ETFs will give further boost these products” said Debasish Mallick, managing director at IDBI Asset Management. “The Government in future might also consider divestment of public sector undertakings (PSUs) through the ETF route,” he added.