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Can funds invested in Fixed Maturity Plans be redeemed at an earlier date?

Can funds invested in Fixed Maturity Plans be redeemed at an earlier date?
Fixed Maturity Plans or FMPs, supposed to be a better bet in contrast to other debt or fixed income instruments in a rising interest rate scenario, are closed-ended debt oriented funds meaning that the funds in the investment get locked in until the maturity date.Know more about FMPs.

However, as per the SEBI's ruling to provide a certain route of an early exit from mutual fund investments, such FMPs are listed on the bourses. So, the answer to the query that whether or not it is possible to redeem funds in the FMP scheme at an earlier date in theory is yes but practically it is not possible. As, under such a circumstance, when an investor wishes to exit an FMP investment at an earlier time on account of some emergency, the asset management company or AMC is under no obligation to buy the units from the investor. And, the investor needs to find the buyer for the units or sell the units held by him or her at the exchange.

With almost nil liquidity at the exchange for such plans chances of finding a buyer for the units is very low. Though, it can be noted that in comparison to previous years, trading volume in such closed-ended schemes has witnessed a substantial increase on a daily basis.

So, even in a case when you happen to find the buyer for the FMP units held by you, the offered price can be way lower than the NAV of the fund. This means selling of units at such a price shall make you incur capital loss on your investment. So, it is very important to plunge into such closed-ended schemes after carefully evaluating your investment horizon and ensuring that funds directed in the scheme shall not be required over the pre-defined term.


Nonetheless, when even after careful scrutiny, you encounter some unforeseen situation and need to liquidate funds in the investment, you shall be better off by taking a loan from the bank against the investment in the scheme instead of trying hard to sell the units at the bourses.

Story first published: Wednesday, January 29, 2014, 12:04 [IST]
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