Fixed Maturity Plans (FMPs) in Mutual Funds: Key Features and Benefits

1. Fixed Maturity Plans (FMPs) in Mutual Funds: Key Features and Benefits In the world of mutual funds, Fixed Maturity Plans (FMPs) have emerged as a popular investment option for those seeking stability and predictable returns. FMPs are close-ended debt mutual funds with a fixed maturity period, typically ranging from one to five years. They are designed to provide investors with a predefined investment horizon and a clear understanding of the expected returns. Let's delve deeper into the key features and benefits of FMPs. 1. Fixed Tenure: Unlike open-ended mutual funds, FMPs have a fixed maturity date, which offers investors clarity on the investment horizon. This feature makes them suitable for individuals with specific financial goals or those seeking to align their investments with future requirements such as education expenses or retirement planning. Capital Preservation: FMPs primarily invest in debt instruments such as government securities, corporate bonds, and money market instruments, which are known for their relatively lower risk profile compared to equities. This focus on debt securities helps in preserving the capital invested, making FMPs an attractive choice for conservative investors. Predictable Returns: FMPs aim to generate stable returns by investing in securities with matching maturities. This strategy allows fund managers to offer investors an indicative yield or expected return at the time of investment, helping individuals make informed decisions. The predictability of returns makes FMPs an appealing option for risk- averse investors seeking stable income. Tax Efficiency: FMPs have a distinct tax advantage over other debt- oriented mutual funds. If an FMP has a tenure of more than three years, the returns are considered long-term capital gains and attract a lower tax rate, currently 20% with indexation benefits. Indexation takes into account inflation during the holding period, thereby reducing the tax liability further. This tax efficiency makes FMPs an attractive investment avenue for individuals looking to optimize their tax outflow. Liquidity Options: While FMPs have a fixed maturity period, they also offer certain liquidity options. Many FMPs provide investors with the facility of periodic repurchase, allowing them to exit before the maturity date, albeit with certain conditions. However, it's essential to note that early exits may attract exit loads or result in a deviation from the original investment objective. Diversification: FMPs often invest in a diversified portfolio of debt instruments, reducing the concentration risk associated with investing in a single security. By spreading investments across various issuers and sectors, FMPs aim to minimize the impact of default risk and credit downgrades, thus enhancing the overall risk-adjusted returns. In conclusion, Fixed Maturity Plans (FMPs) present an attractive investment option for individuals seeking stability, predictable returns, and tax efficiency. With their fixed tenure, capital preservation, and predictable yields, FMPs align well with the financial goals of risk-averse investors. Moreover, the tax advantage and liquidity options further enhance their appeal. However, it's crucial for investors to carefully evaluate the specific terms and conditions of each FMP before making investment decisions. Consulting a financial advisor or conducting thorough research can help individuals make informed choices and harness the potential benefits of FMPs for their investment portfolios. 2. 3. 4. 5. 6. Read More :What is FMP in Mutual Fund? Key Features and Benefits