Fixed Maturity Plan-FMP

Key Features of FMP

·         Fixed Maturity Plans (FMPs) are closed-ended debt funds with maturity of one month to five years.

·         Fixed Maturity Plan generates regular income and / or capital appreciation by investing in wide range of debt and money market instruments.

·         In Fixed Maturity Plan, each plan under the scheme will invest in a portfolio of securities normally having maturity duration in line with the maturity duration of the respective plan.

·         They invest in debt instruments such as certificate of deposits, commercial paper and corporate debentures with a maturity coinciding with that of the fund.

·         They usually invest in credit worthy instruments (AAA or equivalent rated) which takes care of credit risk.

·         The objective of fund managers is to lock into a certain rate of return on the assets at inception, thereby protecting the schemes against market fluctuations.

·         FMPs can be described as the mutual fund industry's alternative to fixed deposits.

·         FMPs are a good investment vehicle for investors who are targeting a return on their investments over a fixed period of time and are indifferent to market volatility within that period.

Advantages of Investing in FMP

·         Capital protection advantage: Less risk of capital loss than equity funds as investment is in debt and money market instruments.

·         Tax advantage: Being a debt-based scheme, dividend are tax free in the hands of investors, mutual fund has to pay Dividend Distribution Tax (DDT), while bank Fixed Deposits interest is fully taxable in investor's hands.

·         Double indexation: Hold an investment for a little more than one year but get the benefit of the index multiple of two years.

·         Low interest rate sensitivity: As securities are held till maturity, FMPs are not affected by interest rate volatility.

Why Invest now in FMPs

·         Uncertain interest rate scenarios, FMP are better investment option compared to Bank fixed deposits.

·         Debt Funds are exposed to interest rate, liquidity & credit Risk while FMPs are exposed to credit risk only which is taken care by investing in high Quality Papers.

·         A hedge against Interest Rate Volatility.

·         Good instrument as a portfolio diversifier.

·         Ideal for Investors with low risk appetite.