Risk

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

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.

Returns

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.

Taxation

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.

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