SBI MF launches the Fixed Maturity Plan – Series 63: Should we invest in this FMP?
SBI Mutual Fund has launched a 372 Day Fixed Maturity Plan (FMP) – Series 63 with the aim of providing investors with regular income and capital growth with limited interest rate risk.
The investment objective would be achieved by investing in a portfolio of debt securities maturing no later than the maturity of the plan.
Thus, the yield of the FMP would be equivalent to the yield of securities of similar maturities prevailing on the date of the investment.
The New Fund Offering (NFO) period of the fund is August 16-22, 2022. The issue price is Rs.10 per unit and the minimum investment amount is Rs.5,000.
The fund’s benchmark index is the CRICIL Short-Term Bond Fund Index.
Here are some advantages of the SBI MF FMP – Series 63
As the fund will invest in fixed income debt securities, stock market fluctuations will have no impact on investors’ capital investments and the amount of return from the FMP itself can be expected.
Short investment period
As the duration of the FMP is 372 days – or 1 year 7 days only – investors don’t have to wait long to get the money back. In addition, short-term debt instruments are considered safer than long-term instruments. Thus, the risks associated with the fund will be even lower.
However, due to the shorter duration of the investment, investors will not receive the benefit of indexation and gains will be added to investors’ income to determine taxable income.
Commenting on the benefits of FMPs, Vineet Patawari, co-founder and CEO of StockEdge & Elearnmarkets, said, “FMPs offered by mutual funds are comparable to FDs offered by banks, with the added benefit of better after-tax returns than bank FDs as well as liquid funds. . Short-term gains on loan funds (i.e. those held for less than three years) are taxed at the investor’s marginal tax rate, while long-term gains (i.e. those held for less than three years) are taxed at the investor’s marginal tax rate, while long-term gains (i.e. i.e. those held for three years or more) are taxed at 20% with the benefit of indexation. With fixed deposit returns, gains will be taxed at the investor’s marginal tax rate. »
Although there is no equity investment, investments in debt and money market instruments under the scheme may be subject to credit risk, liquidity risk, interest rate risk interest and reinvestment risk.
There are also instances of default risks, when a company fails to meet its timely repayment commitments against fixed-yield instruments. There were many cases in 2018 and 2019, when many companies with good credit ratings not only failed to repay their debts on time, but also had to close their operations. In such cases, FMP returns become negative and to protect investors’ interests, fund companies either offer investors rollover options or make partial redemptions after separating the portfolio.
Since FMPs are closed funds, investors wishing to withdraw money before maturity encounter difficulties in redeeming the units.
“One of the disadvantages of FMPs is that they can be illiquid. FMPs are closed-end funds, which means they can only be traded on exchanges, where they are listed. These units are negligible, which makes FMPs illiquid.For this reason, investors need to be sure that they can hold the units until they mature,” Patawari said.