Fixed Maturity Plans !
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A fixed Maturity Plan (FMP) is a fixed-tenure mutual fund scheme that invests its corpus in debt instruments with durations that correspond to the scheme's tenure. An FMP's tenure can vary from a few months to a few years.
Benefits Of Fixed Maturity Plans
Indexing makes Fixed maturity plans tax-efficient for investors. This is only true for long-term investors.
Fixed maturity plan investments have a set term. The investment experiences market fluctuations. This stabilizes the fund's performance. Market changes rarely affect Fixed maturity plans.
Fixed maturity plans aren't risk-free, but they're low-risk relative to equity mutual funds. Since investors must hold until maturity, interest volatility is low.
How Fixed Maturity Plans Fund Work?
An FMP portfolio is made up of multiple fixed-income products with matching maturities.
A fund manager invests in instruments so that they all mature at the same time based on the FMP’s term.
During the plan’s duration, all units are maintained until they mature on a specified date. As a result, investors receive an estimate of the plan’s rate of return.
Features of Fixed Maturity Plans
Fixed maturity plans give investors the choice of selecting a plan that fits their investment horizon and cash flow requirements. FMP investments are fixed and cannot be withdrawn until the funds mature.
Because the fund holds on to the instruments until they mature, constant maturity plans carry a low risk of fluctuating interest rates. This allows the fund to earn a relatively stable rate of return.
Since fixed maturity plans invest almost exclusively in high-rated credit instruments, there is less of a chance that they will default on their payments. In addition to this, the risk of liquidity is low.
One area where fixed maturity plans beat fixed deposits is tax efficiency. When investing for more than a year, investors can take advantage of indexation to offset their tax liability against inflation.
Fixed maturity plans offer stable returns over the course of time and function as an asset allocation tool. Because of these things, the scheme can attract investors from a wide range of places.
Difference Between Fixed Maturity Plans And Fixed Deposits
|Basis||Fixed Maturity Plan||Fixed Deposits|
|Liquidity||Ristricted liquidity as these are closed ended funds.||Higher liquidity.|
|Redemption||Redemption is ristricted to maturity but can sell if the funds are listed on exchanges.||Easy redemption both pre mature and on maturity.|
|Taxation||Divident distribution tax and capital taxes are levied as per the applicability.||Interest income is added to the annual income and taxed as per the applicable slab.|
|Returns||The returns are mostly fixed but are a little indicative.||These offers fixed returns .|
A fixed maturity plan is best suited for people who want to get assured returns at maturity. This plan can be used for various life stage needs such as child’s education, marriage, retirement corpus as well as financially securing loved ones.
A fixed maturity plan is one of the most secure forms of investment as it primarily targets debt securities of renowned listed companies operating in a country. Debt tools act as a liability for a company, and thereby, are repaid first from annual revenues.
FMPs invest in highly rated instruments like government bonds, institutional debt, AAA rated debt wherein the risk of default is much lower and offers portfolio stability. FMPs predominantly eliminate interest rate risk for the investor.