Five smart things to know about securities transaction tax on MFs

1) Mutual funds invest in securities and are, therefore, subject to the securities transaction tax (STT). This is paid during the transaction and added to the scheme expenses.

2) STT is not payable by investors when they buy mutual fund units, but when they redeem the units of equity oriented funds.

3) The rate of STT is announced in the Union Budget and is applied to the redemption amount for equity-oriented funds.

4) If your redemption is denominated in units, the fund will deduct the STT from the value of units and pay the balance.

5) your redemption is denominated in rupees, the fund will arrive at a gross amount, which will be the sum of your redemption and STT, and redeem the units as required.

Courtesy: Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre and Arti Bhargava.