Is Fixed Maturity Plan (FMP) Right For Your Investments: Should You Invest?
Does it guarantee returns like regular FDs?
FMP does not guarantee returns; Unlike bank FDs, where you receive the exact returns shown on your FD certificate, mutual fund FMP returns are indicative only. At the time of the NFO, the fund house only mentions indicative returns. However, yields to maturity may be higher or lower. In most cases, the difference between indicative and actual FMP returns is minimal. So why do consumers prefer FMPs over bank FDs if they don’t provide guaranteed returns? One of the most important factors is taxes.
Tax benefits of investing in FMPs
FMPs are taxed the same as other debt funds since they are a form of debt fund. On any FMP with a duration of less than 36 months, short-term capital gains tax is imposed depending on your income tax bracket. If you hold your FMPs longer than three years, you can benefit from indexing and get higher returns than a fixed deposit of the same duration, especially if you are in the highest tax bracket.
Who should invest in FMPs?
FMPs are suitable for investors who don’t want to time the interest rate cycle and want to keep their money in closed-end funds. If you want to protect yourself from the volatility of interest rate risk and invest for the long term (more than three years), FMPs will provide you with higher returns. However, before investing, keep in mind that FMPs are closed-end plans and you probably won’t be able to redeem your investment before maturity.