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.
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.
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.
'Why are FMPs used as a vehicle for promoter funding against listed shares?' asks Debashis Basu.
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.
For FMPs, it's been quite a journey from seemingly-innocuous, yet popular investment avenues to limelight-hogging villains.
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.
If you are planning to invest in Fixed Maturity Plans, think twice. Because most mutual fund managers believe that FMPs are unlikely to give higher returns as they did last year. And, this is beginning to show in their collections as well. In March 2007, FMPs had collected Rs 30,869 crore (Rs 308.69 billion). In March 2008, they attracted only Rs 21,688 crore (Rs 216.88 billion). Even in April this year, 62 schemes collected only Rs 1,126 crore
Sebi is planning to fast track mutual fund products. This move will speed up the approval process and help fund houses to cater to investor demands.
Fixed maturity plans are definitely a better investment option than bank fixed deposits. Here's why...
If you are looking for a fixed income avenue that yields a reasonable return with minimum risk, adequate liquidity and tax efficiency, FMPs will provide you with an effective shelter.
'TMFs trump FMPs and FDs when it comes to investing in a high-duration product.'
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.
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.
An FMP offers the advantage of lower tax in comparison to a bank FD.
Invest with a fund house with pedigree and reputation.
As much as Rs 3,204 crore (Rs 32.04 billion) of bank deposits by mutual funds will move out of the banking system from mid-July following a new rule
One should base the decision on one's potential liability under the new tax rules.
'Investors need to find out how the FMP's assets are distributed and ensure the investments are in high-quality names.'
Heed your liquidity needs before investing in an FMP.
What are FMPs and should you invest in them?
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.
Check out these four debt fund categories for investment this year...
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.
It is a toss-up between liquidity and higher returns; if the tenure is more than three years, FMPs score.
TMFs invest in a public index, so investors know beforehand which instruments the fund will invest in.
According to industry players, over 50 FMPs have exposure to Zee Group companies.
Invest in liquid funds if you have a horizon of three months, ultra-short-term for six months, and low-duration funds for one year.
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.
They are closed-ended funds, meaning you can invest in them only when they are open for purchase.
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.'
One category which stands out is fixed maturity plans due to its tax benefits, notes Prateek Mehta, CEO and company-co-founder, Upwardly.in.
Risk-averse investors must now look for investment options that can give them that extra return, a role that was until now played by FMPs and FDs.
While FMPs no longer offer the same short-term advantage, it is still a good product for the medium term.
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.
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,
Go for high quality and low-to-medium-duration funds in your debt portfolio
© 2026 Rediff.com - Advertise with us - Disclaimer - Privacy Policy - Sitemap - Feedback - About us - Terms of use - Grievances