Is Fixed Maturity Plan (FMP) Good For Your Investments: Should You Invest?

Fixed Maturity Plan (FMPs) are a form of debt mutual fund with a predetermined maturity period that might range from one month to five years. FMP is a fixed duration mutual fund scheme that invests its corpus in debt securities having maturities that correspond to the scheme's terms. Investors can examine the scheme information document to determine the quality of the underlying debt instruments chosen for the FMPs. The goal of FMPs is to forecast the interest rate cycle and choose appropriate instruments that will provide the highest returns to investors.

Does it guarantee returns like regular FDs?

 

FMPs do not guarantee returns; unlike bank FDs, where you receive the precise returns stated on your FD certificate, FMP returns in mutual funds are only suggestive. At the time of the NFO, the fund house only mentions indicative returns. However, the returns at maturity might be larger or lower. In most circumstances, the gap between the indicative and actual returns of FMPs is minimal. So, why do consumers prefer FMPs over bank FDs if they do not deliver assured returns? One of the most important factors is taxes.

Tax advantages of investing in FMPs

FMPs are taxed in the same way as other debt funds since they are a form of debt fund. On any FMP having a duration of less than 36 months, short-term capital gains tax is imposed in accordance with your income tax bracket. If you retain your FMPs for more than three years, you can benefit from indexation and earn higher returns than a fixed deposit of the same duration, especially if you are in the highest tax band.

Who should invest in FMPs?

FMPs are appropriate for investors who do not wish to time the interest rate cycle and want to retain their money in closed-end funds. If you want to protect yourself from the volatility of interest rate risk and invest for the long term (more than three years), FMPs will provide you with higher returns. However, before you invest, keep in mind that FMPs are closed-ended schemes, and you will most likely be unable to redeem your investment before maturity.