Anand Rathi Insights

Fixed Maturity Plans

What are Fixed Maturity Plans?

Fixed Maturity Plans (FMPs) are a type of mutual fund that invests primarily in debt instruments with fixed maturity dates. Unlike open-ended mutual funds, which have no fixed maturity date, FMPs have a specific date when the fund will mature, and the investments will be redeemed. This feature makes them an attractive option for investors who want the stability of fixed income investments, but with the potential for higher returns than traditional fixed deposit products.

FMPs invest in fixed income securities such as corporate bonds, government bonds, and money market instruments. The fund manager selects the debt instruments based on their credit rating and maturity date to ensure that the fund has a well-diversified portfolio. The investments in the fund are held until their maturity, at which time the fund manager redeems the securities and returns the money to investors. This means that the fund is not constantly buying and selling securities, which helps to reduce the risk of capital losses.

What are the benefits of investing in Fixed Maturity Plans?

One of the key benefits of investing in FMPs is the predictability of returns. The fund manager is able to estimate the returns that the fund will generate based on the interest rate and maturity of the underlying debt instruments. This allows investors to plan their investment strategy more effectively and make more informed investment decisions.

Another advantage of FMPs is that they are generally less volatile than equity investments. The fund manager invests in debt securities, which are typically considered to be safer than equity investments. This means that the fund is less likely to experience large fluctuations in value, making it an ideal option for conservative investors who want to protect their capital.

FMPs are also ideal for investors who are looking for tax-efficient investment options. Interest income from debt securities is taxed at the investor's marginal tax rate, but long-term capital gains from FMPs are taxed at a lower rate of 20% with indexation benefits. This makes FMPs an attractive option for investors who are looking to minimize their tax liability.

In conclusion, Fixed Maturity Plans (FMPs) offer a range of benefits for investors who are looking for stability and predictability in their investment portfolio. They are ideal for conservative investors who are looking for a lower-risk investment option, and for those who want to minimize their tax liability. If you are considering investing in FMPs, it is important to speak to a financial advisor to determine whether they are a good fit for your investment goals and risk tolerance.