Fixed maturity plans, which have garnered Rs 102,133 crore (Rs 1021.33 billion) of average assets under management, are facing the prospect of rising defaults on their investments in the real estate and non-banking financial companies. This implies that if there are redemption pressures from their corporate and retail clients, these FMPs would have to raise cash from other resources to meet the demand.
They are closed-ended funds, meaning you can invest in them only when they are open for purchase.
FMPs are basically debt-based products, which come with a pre-specified tenure.
In a rising interest rate regime, fixed maturity plans can offer good returns. But exit in the interim is difficult because of listing.
The Securities and Exchange Board of India (Sebi) on Thursday said it would soon put the fixed maturity plans (FMPs) and close-ended income schemes of mutual fund houses on the fast-track route.
'Investors need to find out how the FMP's assets are distributed and ensure the investments are in high-quality names.'
While FMPs no longer offer the same short-term advantage, it is still a good product for the medium term.
It is a toss-up between liquidity and higher returns; if the tenure is more than three years, FMPs score.
Heed your liquidity needs before investing in an FMP.
FMPs remain an option for investors who believe interest rates could head downward over time and wish to lock in the current rates. TMFs have very low expense ratios, which makes them cost-efficient.
Fixed Maturity Plans earn better returns than similar-tenure fixed deposits
P V Subramanyam clears some misconceptions about debt funds.
'TMFs trump FMPs and FDs when it comes to investing in a high-duration product.'
Quite often for investors fixed maturity plans and fixed deposits are alike but there are some distinct differences. The protection of capital is foremost selling point for both FMPs and FDs. But FMPs score over FDs on a few parameters.
Mutual funds have ratcheted up Rs 53,700 crore (Rs 537 billion) through new fund offers (NFOs) in 2022 until November, against Rs 1 trillion in Calendar 2021, notwithstanding the number of launches this year eclipsing the 2021 tally. Industry insiders cite the absence of launches in popular categories as the reason behind lower collections this year. Typically, only NFOs in popular categories from major fund houses rake in the moolah.
TMFs invest in a public index, so investors know beforehand which instruments the fund will invest in.
The Rs 38-trillion mutual fund (MF) industry is going through a new fund offer (NFO) rush. Since July 1, the industry has launched close to 70 NFOs. This follows the completion of a near three-month embargo period when the industry had vowed to not launch any new offerings till the time it implemented norms around pooling of investor accounts. As a result, between April and June 2022, the industry was able to launch just three NFOs.
Investment are made in Fixed Maturity Plans and other debt schemes.
Fixed maturity plans are definitely a better investment option than bank fixed deposits. Here's why...
Since the last year, fixed maturity plans, or FMPs in short, have been gaining considerable popularity among conservative investors. The prime reason for this lies in investors seeking a safer alternative to equity funds, with decent returns and tax efficiency.
If India has to grow at 8.5 per cent, the core of the portfolio must be in banking.
There is no ignoring the respectable returns given by National Savings Certificate, which are not only assured, but also tax-exempt under Section 80C and government-guaranteed.
Not many takers for debt funds with longer maturity.
An additional factor spurring the FMP launches is MFs' desire to retain investors as many such offerings are set to mature over the next two months.
Sebi on Friday imposed a penalty of Rs 50 lakh on Kotak Mahindra Asset Management Company (AMC) and barred the fund house from launching new fixed maturity plan (FMP) scheme for six months for violating regulatory norms. The markets regulator has directed the fund house to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes along with a simple interest at the rate of 15 per cent per annum. The case relates to the fund house's investment in certain FMPs. These FMPs of Kotak AMC had invested in Zero Coupon Non-Convertible Debentures (ZCNCDs) issued by Essel Group entities.
This product was first introduced by ICICI Prudential Mutual Fund (ICICI Prudential FMP Series 33) and Deutsche Mutual Fund in February. Recently, Birla Sun Life Mutual Fund has also floated a similar fund. The Nifty return, multiplied by the participation ratio (that is pre-decided by the fund) is the final returns. In Aviator, the participation ratio is 140-145 per cent, leading to returns of 43.14-44.5 per cent in our given example.
For instance, new fund offers of ICICI Prudential, Tata Mutual Fund and Fortis are on, while Religare, HDFC and Principal PNB have applied for launching NFOs.
Though the fund houses have garnered over Rs 1,500 billion from investors, only 8-10 would declare their monthly FMP portfolios till a few months ago. Instead, they gave 'indicative portfolios' and 'indicative returns' to the potential investor. This month, all fund houses declared the portfolios of their schemes because of the half-yearly results. And, to the horror of many investors, the real portfolios were 80-90 per cent different from the 'indicative portfolios.'
In October-November 2008, there was excessive pessimism around. That period could take the cake for being one of the most challenging periods for equity market investors.
Depressed markets, Sebi queries, change in guidelines halt launches.
The proposal to scrap 'indicative portfolios' has arisen because investors have sometimes found deviations of as much as 80 per cent between the indicative and actual portfolios. In some cases, the entire corpus has been invested in a single instrument. Sebi will also consider Amfi's suggestion of a 3 to 6 per cent exit load for FMPs, a minimum tenure of three months and a faster processing of redemption payouts,
It's that time of the year, when fund houses roll out their FMP (fixed maturity plans) products in response to the attractive yields on corporate bonds. Expectedly, investors view FMPs as a means to clock a higher return at relatively low risk (actually many investors believe there is zero risk in an FMP). While this is mostly true, some points about FMPs are noteworthy.
Use fixed maturity plans to tide interest rate volatility if you're okay with lock-in because longer duration. FMPs can give up to annualised 7.7 per cent returns.
An FMP offers the advantage of lower tax in comparison to a bank FD.
The country's 44 fund houses together garnered an average Asset Under Management) of Rs 9.04 lakh crore (Rs 9.04 trillion) during the January-March quarter of 2013-14, up from Rs 8.76 lakh crore (Rs 8.76 trillion) in the previous three-month period, Crisil said attributing the data to the Association of Mutual Funds in India.
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