Mutual Fund

The tenure can be of different maturities, from one month to three years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flow.

FMPs invest in fixed income instruments, like certificate of deposits (CD), commercial papers (CP), money market instruments, corporate bonds; debentures of reputed companies or in securities issued by Government of India and fixed deposits.

One can enter an FMP when they are launched and exit them when their pre-stated term is over.

Fixed Maturity Plans have less risk of capital loss due to their investment in debt and money market instruments.

FMPs are least exposed to interest rate risk as the fund holds the instruments till maturity getting a fixed rate of return.

They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved.

Since the instrument is held till maturity, there is a cost saving in respect of buying and selling of instruments.

FMP's score over fixed deposits because of their tax efficiencies both in the short term as well in the long term. When you put money in a fixed deposit, the interest gets added to your income. In FMPs longer than a year, if you elect to take all your gains as capital appreciation, the taxation is merely 20 per cent with indexation benefit.

FMP not only suits a Fixed Income Investor but also complements the portfolio of Equity Oriented Investors. Equity investor can route his gains and invest in this product thereby utilising his gains/surplus money in an effective way.

Indexation helps to lower capital gains and hence lower the tax. Double indexation benefit gives an investor the advantage of indexing his investment to inflation for two years.