what is FMP?
Fixed Maturity Plan (FMPs) falls under the debt category of mutual fund with exposure to fixed income securities with the Primary objective is to generate income while protecting the capital by investing in a portfolio of debt and money market securities. They are also known as Fixed Tenure Funds (FTF) and Fixed Horizon Funds (FHF).
The portfolio of FMPs basically consists of fixed income securities viz. Certificate of Deposits (CDs), Commercial Papers (CPs), corporate debt papers, PTCs (Pass through certificate) and other liquid & money market instruments. These securities come with lesser risk and delivers fixed returns. Maturity of instruments corresponds with the maturity of FMPs.
The level of risk is less, due to exposure to Debt & Liquid instruments. It is advisable to invest in fund house with a proven track record, as risk depends on quality of debt papers in portfolio. The risk of interest rate volatility is minimal as the maturity of portfolio instruments corresponds with fund maturity.
FMPs come with different maturities ranging from 30 Days, 90 Days, 6 months, 1 year, 3 years, 5 years and are locked in till the maturities period.
Investment in FMPs & Bank FDs for a period of 1 year.
(Fixed Maturity Plan) (FDs)
(FDs) Bank Fixed Deposits
Rate of Return (%)
Return (%) Post Tax
- #In FMPs, long-term Capital Gains are email@example.com% without indexation, while short-term (period less than 1 year) are taxed as per income slab.
- * Capital gains (Interest) from bank FDs are taxed as per income slab for both short & long –term Duration.
When to Invest in FMPs?
It is ideal to especially FMPs with maturity ranging from 3 months to 1 year are lucrative during rising interest rate regime, as investor benefits from higher yield during maturity.
Which option of FMPs to be selected
It is desirable to choose dividend option for a horizon less than 1 year as it is tax effective to pay Dividend Distribution Tax @ 13.52%, rather than growth option,where short-term capital gains are taxed as per the rate applicable to income slab of individual.