What are Fixed Maturity Plans in Mutual Funds, Should Invest or Not?

By Advisorymandi
10-October-2018 12:05:52 PM

Many people consider mutual funds as the risky investment avenue, but for those who do not know that there are some plans that are not only safe like the bank fixed deposits but also provide good returns to help you meet your financial goals. The Fixed Maturity Plans (FMPs) are one such investment options that are becoming highly popular among the investors because of their better returns and long-term security.

Let us try to determine what makes the fixed maturity plans so popular.


What are Fixed Maturity Plans?

FMPs are basically closed-ended debt funds in which the investments are mostly in the commercial papers, government bonds, corporate bonds, treasury bills, institutional debt, certificates of deposits and so on. The maturity period of these plans ranges from one month to five years. If an investment is made in the FMPs for three years, then it provides the tax benefit. That is why the 3-year FMPs are high in demand among the investors. Since the investments are debt-oriented and locked for long-term, the investors are not required to worry about the market fluctuations as they are assured of getting the fixed returns after the expiry of the lock-in period.

Important Point to Remember: One cannot invest in the FMPs anytime, just like the open-ended debt funds. The investment in these plans can be carried out in the New Fund Offer (NFO), which is around for 2-3 days. The investments will not be accepted after the expiry of the offer.


Benefits of Fixed Maturity Plans

There are two prominent benefits of investing in the FMPs, which are:


  • Higher Returns: If we compare the FMP with the FD, then FMP provides better and higher returns than FD.
  • Tax Benefits: If the investment is made for more than 3 years, then the investors get the indexation benefits that help in decreasing the capital gains, which in turn lowers the tax. In case, an individual invests in FMPs for less than 3 years, then the amount that will be paid is treated as the short-term capital gain and will be added to the income of the investor.


 Drawbacks of Fixed Maturity Plans

Just like there are two sides of the coin, FMPs also comes with some drawbacks, which are as follows:


  • Non-liquidity: This is one of the huge disadvantages of the FMPs. If the money is locked for the longer period of time, then the money cannot be redeemed before the date of maturity.
  • Credit Risk: FMPs come with some risks also related to the returns. If the rating of the FMP is downgraded, then it will ultimately affect the returns.


How FMPs are Different from Bank Fixed Deposits?

It is important to note that most of the people tend to consider the FMPs and Fds as same but there are some differences between the two –


  • There are assured returns in Fds but you get a probable return from the FMPs.
  • An individual can save tax by investing in FMPs due to the indexation benefit. The interest earned on the fixed deposits is taxable.


You are free to choose your own investment option. You can either invest your money in one or both of them. However, before making an investment, do not forget to look at your investment objective.


Should Investment be Made in the Fixed Maturity Plans?

The FMPs are one of the best investment options mainly for the first time investors those who are little apprehensive about the mutual funds or losing money. These plans are quite safe just like the fixed deposits. As the returns are also on the higher side, so an individual can plan to invest in the FMPs for long-term (minimum 3 years). However, it is also advisable to check out the credit risk in the fixed maturity plans before taking the decision to invest.


Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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