What are Fixed Maturity Plans (FMPs)?

Fixed Maturity Plans (FMPs) are closed-ended debt mutual funds with a predetermined maturity date. They operate on a fixed tenure and allow investors to invest only during the New Fund Offer (NFO) period. They primarily invest in debt securities such as government bonds, corporate bonds, and money market instruments. 

Features of Fixed Maturity Plans 

Fixed Maturity Plans (FMPs) offer a structured investment approach with several distinct features: 

• Fixed tenure: FMPs have a predefined maturity period, ranging from a few months to several years. 
• Closed-end structure: Investors can only invest during the New Fund Offer (NFO) period. 
• Debt-oriented investments: The fund's corpus is primarily invested in debt securities. 
• Higher returns: Fixed maturity plan may give higher returns compared to traditional fixed deposits due to their investment in a diversified debt portfolio provided they are risky than traditional fixed deposits. Portfolio managers primarily choose debt instruments issued by renowned companies to build a corpus that may generate highest possible returns. 
• Tax benefits: FMPs can provide tax benefits under the long-term capital gains (LTCG) tax regime. 

Advantages of Fixed Maturity Plans 

Fixed maturity plans offer several benefits to investors: 

• Diversification: By investing in a basket of debt securities, FMPs offer diversification benefits.
• Tax efficiency: FMPs can be tax-efficient due to the indexation benefits available under LTCG.
• Suitable for specific investment horizons: FMPs are ideal for investors with a fixed investment horizon matching the fund's maturity.
• Lower Volatility: FMPs offer lower volatility due to their investment in debt securities.
• Easy Management: FMPs are professionally managed and require minimal investor involvement.
• Predictability: The fixed maturity provides a sense of certainty and predictability.

While FMPs offer potential benefits, they also come with certain risks. Interest rate fluctuations can impact the fund's performance, and credit risk associated with underlying debt securities exists. Therefore, it is essential for investors to carefully consider their risk tolerance and investment objectives before investing in FMPs.