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Fixed maturity plans are debt funds that are close-ended, which means that investments can be made only during the time of new fund offer. As the name suggests, it has a fixed maturity period with investments across debt instruments like highly rated securities and corporate bonds. These are designed to ensure investors get a rate of return that is reasonably predictable and at the same time tax efficient, against the instability of interest rates.

  1. What are Fixed Maturity Plans?
  2. Fixed deposits vs fixed maturity plans
  3. What are the objectives of FMPs?
  4. Features of Fixed Maturity Plans
  5. Best Fixed Maturity Plans

 

1. What are Fixed Maturity Plans?

Fixed maturity plans primarily invest in fixed income instruments like certificates of deposits or bonds that lock in the yields that are currently available. These are closed-ended mutual fund schemes with a pre-defined period of tenure. This tenure can range between 30 days to as long as five years. The most commonly available tenures range from 30 days to 180, 370 and 395 days.
 

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2. Fixed Deposits Vs Fixed Maturity Plans

A lot of people confuse a fixed maturity plan with a bank fixed deposit. Though the lock in tenure is a common denominator, fixed maturity plans are debt funds that invest in company debt and government securities. They do not carry any component of equity barring the exception when a fixed maturity plan opts for a limited component of equity.

FDs

FMPs

Returns Guaranteed returns Indicative Returns
Tax Interest income is added to your annual income and taxed as per the applicable slab. => In FMP-Dividend – a Dividend Distribution Tax [DDT] is levied

=> In FMP-Growth – Capital gains tax apply

Maturity Period Varying maturity period options Varying maturity period options
Liquidity Ease of premature redemption, higher liquidity Restricted liquidity

 

3. The Objective of a Fixed Maturity Plan

The prime objective of a fixed maturity plan is to generate a steady return for a fixed period of time. This plan also protects investors from the fluctuations of the market. Fixed Maturity Plans are not available for subscription on a continuous basis and therefore, the fund house comes up with a New Fund Offer (NFO) for a specific duration. NFO has an opening date and a closing date. You may invest in the NFO only during these days. Upon expiry of the closing date, the offer to invest ceases to exist.
 
mutual funds
 

4. Features of Fixed Maturity Plans

a. Fixed Tenure

Fixed Maturity Plans offer investors the option of choosing a plan that suits their investment horizon and their cash flow needs. Investors get to know in advance approximately how much yields they would get by investing at the NFO stage.

b. Closed-ended funds

This means the investment option is made available only during the initial offer period of the scheme, and the redemption can only be made during the time of maturity. There is an option though, where unitholders who have units held in demat mode, can sell their units on the stock exchange which have units of a fixed maturity plan schemes listed. This way they can exit the fixed maturity plan ahead of its tenure.

c. Investment strategy

Investment of Fixed Maturity Plans can be in the form of commercial papers (CP), certificate of deposits (CD), corporate bonds, money market instruments, government issued securities,  non convertible debentures (NCD) of highly rated and reputed companies, etc. with maturities that fall in line with the tenure of the scheme. For more investing options, visit ClearTax to choose from a list of hand-picked mutual funds.

d. Sensitivity to Rate of Interest

Fixed Maturity Plans have minimum exposure to the risk of interest rates because the instruments are held by the fund till the maturity which allows it a fixed rate of return.

e. Credit Risk

Owing to the fact that Fixed Maturity Plans invest mostly in highly rated credit instruments, the risk of low credit is minimized. Also, there is very little risk of liquidity involved.

f. Tax Implications

One area where Fixed Maturity Plans win over fixed deposits is the efficiency in taxation. When opting for a tenure longer than a year, investors of Fixed Maturity Plans can benefit from indexation to leverage their tax liability against inflation. Triple indexation gives investors the advantage of indexing their investment to inflation for four years while they remain invested for a period of three years and over.

g. Balancing of Portfolio

Fixed Maturity Plans offer stable returns for the tenure and work as asset allocation tools. This allows the scheme to find investors from a wide investor base.

5. Best Fixed Maturity Plans (1+ year)

 

Fund Name

Tenure

Open

Close

Aditya Birla Sun Life Fixed Term Plan – Series PT (1100 Days) – Regular Plan 1100 04 – May 08 – May
HDFC Fixed Maturity Plan – 1434 Days – May 2018 (1) – Regular Plan 1434 04 – May 08 – May
Invesco India Fixed Maturity Plan Series 31 – Plan C – Regular Plan 1106 24 – April 08 – May
Kotak FMP Series 226 – 1470 Days – Regular Plan 1470 10 – May 14 – May
Reliance Fixed Horizon Fund XXXVII – Series 5 – Regular Plan 1105 9 – May 10 – May
Reliance Fixed Horizon Fund XXXVII – Series 6 – Regular Plan 1417 11 – May 16 – May
UTI Fixed Term Income Fund – Series XXIX – III (1131 Days) – Regular Plan 1131 03 – May 17 – May

The list provided here is based solely on market research, April 2018, for the purpose of information, ClearTax does not endorse any funds. 

 

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