Reduction in STT will witness merger of mutual fund schemes in coming months

Dec. 2, 2013 - PRLog -- The Security Transaction Tax (STT) is reduced by 0.01% to 0.25% for mutual funds (http://saverable.com/mutual-fund) and this has further reduced the merger costs for the mutual funds. This reduction has induced mergers in the mutual fund schemes in the recent months. The 14 mutual fund schemes have been already merged from the month of July after the reduction in STT coming into effect from June.

The merger has helped the finance companies to popularise the laid back schemes and also introduce new mutual fund offerings in the market. The STT which earlier summed up to Rs. 25 lakh has now been reduced to Rs. 1 lakh for the similar mergers and this has encouraged the mutual fud companies to merge their different schemes to change their profit scenario.

Following these mergers, Reliance mutual fund merged its Natural Resources Fund to the Vision Fund. The schemes from IDFC like IDFC Strategic Sector Fund and IDFC India Growth GDP Fund were also merged to IDFC Classic Equity Fund. Many other mutual fund housed have also followed the trend by merging their unpopular schemes to the performing ones.

The investors may also find these mergers quite beneficial as their decision making will become easier and their funds will get directed to the performing funds eventually. On the other hand, the investors will also be liable to the capital gain tax as this change in scheme will be considered as withdrawal. The investor will have all liberty to decide whether he would like to continue with the funds or not. The investors who have invested in these funds in less than a year’s time will also be liable to pay short term capital gain tax.

In short, the merger of mutual funds will be beneficial to the investors as well as the mutual fund company but the investors will be required to take a call about continuing the investment or withdrawing the funds from the surviving scheme.