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Fixed maturity plans are debt funds that are close-ended, meaning investments can be made only during the time of a new fund offer. It comes with a fixed maturity period and invests across debt instruments like high rated securities and corporate bonds. These are designed to ensure investors get a rate of return that is very much predictable, and at the same time tax-efficient, against the instability of interest rates.

1. What are Fixed Maturity Plans?

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

2. How are Fixed Deposits different from 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 factor, fixed maturity plans are debt funds that invest predominantly 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 element 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. What are the Objectives of Fixed Maturity Plans?

The primary objective of a fixed maturity plan is to generate steady returns over a fixed period. This plan also protects investors from market fluctuations. Fixed maturity plans are not available for subscription continuously therefore, the fund house come up with 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.

4. What are the Features of Fixed Maturity Plans?

a. Fixed Tenure

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

b. Closed-ended Funds

The investment option is made available only during the initial offer period of the scheme, and the redemption is allowed only at 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

Fixed maturity plans invest in commercial papers (CP), certificate of deposits (CD), corporate bonds, money market instruments, government-issued securities, non-convertible debentures (NCD) of high rated and reputed companies. The maturities fall in line with the tenure of the scheme.

d. Sensitivity to Interest Rates

Fixed maturity plans have minimum exposure to the risk of interest rate as the fund holds the instruments until maturity, which allows it to yield a relatively fixed rate of return.

e. Credit Risk

Since fixed maturity plans invest predominantly in high rated credit instruments, the risk of default is minimized. Also, the risk of liquidity is minimal.

f. Tax Implications

One of the areas where fixed maturity plans win over fixed deposits are the tax-efficiency. When opting for a tenure longer than a year, investors 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 three years and over.

g. Balancing of Portfolio

Fixed maturity plans offer stable returns throughout the tenure and work as an asset allocation tool, and this allows the scheme to find investors from a broad investor base.

5. Best Fixed Maturity Plans

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 the returns, August 2019, for the purpose of information, ClearTax does not endorse any funds.

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