When planning for your retirement, you play safe and invest your corpus in fixed income and highly safe instruments, fixed maturity plans or FMPs is one such product. FMPs which is a mutual fund product is a closed-ended debt scheme with a fixed maturity date The FPMs enable investment across debt products that include well-rate corporate bonds, several money market and commercial instruments.
One thing that needs to be kept in mind while investing in FMPs, is that the portfolio should be spread across instruments that mature at the same time.
Other factors to be factored in while investing in FMPs.
There is some extent of risk in the investment option and there is no gurantee as that is assured in bank FDs with an insurance cover of upto Rs. 1 lakh on the deposit amount.
Liquidity factor in FMPs is missing as they come with a pre-fixed maturity date and if you need to exit the investment before that time due to some crisis, you need to pay heavily as exit load charges, so do ensure that you do not need funds for a certain specific term before parking your funds in FMPs.
Being closed-ended debt MF schemes, the return on these are not guaranteed, nonetheless they offer an average return of around 8-9%. There can be other external factors which can affect the return and furthermore the returns suggested here do not take into account the income tax factor.
The FMPs which have a maturity term of less than one year, any return on these is added to the total income and is taxed depending on the income tax slab in which the individual falls.
In the other case, when FMPs have a maturity term of over 3 years, indexation benefit is available which means that tax is payable only on real returns that has been arrived at after taking into account the rate of inflation and the tax liability on such gains is computed @ 20% plus surcharge.