Exploring Fixed Maturity Plans (FMPs) as an Alternative Investment Option

Exploring Fixed Maturity Plans (FMPs) as an Alternative Investment Option

Fixed Maturity Plans (FMPs) are emerging as the latest alternative investment option to traditional fixed deposits (FDs). These closed-end debt funds have a fixed maturity period and are gaining popularity among investors.

Unlike open-ended debt funds, FMPs are not available for continuous subscription. The fund house offers a New Fund Offer (NFO) with an opening and closing date, during which investors can participate. Once the closing date is reached, the opportunity to invest ceases to exist.

FMPs primarily invest in debt instruments such as certificates of deposit, money market instruments, corporate bonds, commercial papers, and bank fixed deposits. The fund manager ensures that the chosen instruments have a similar maturity period as that of the FMP.

One key difference between FMPs and other debt funds is the buy and hold strategy employed by FMP fund managers. Unlike other debt funds that frequently buy and sell debt securities, FMPs maintain a more passive approach. This helps to keep the expense ratio of FMPs lower compared to other debt funds.

When comparing FMPs to FDs, both are similar in that they require investors to stay invested for a fixed duration. They also offer varying maturities to suit investors' preferences. However, FMPs differ from FDs in terms of returns.

While FDs offer guaranteed returns, FMPs provide indicative yields. This means that the actual returns may be higher or lower than the returns indicated during the NFO launch. It's important for investors to understand this difference before investing.

Investors who are looking for returns higher than regular FDs and can tolerate the frequent NAV fluctuations may find FMPs appealing. Although FMPs are considered low risk-low return investments compared to equity funds, they do carry some risk due to restricted liquidity.

Before investing in FMPs, investors should carefully consider the historical returns trends, tax implications, and the investment objective of the scheme. It's also important to be aware of recent developments, such as the requirement to stay invested for at least three years to take advantage of indexation on long-term capital gains tax.

In conclusion, FMPs offer an attractive alternative to traditional fixed deposits for investors seeking higher returns. However, investors should carefully evaluate the risks and benefits before making any investment decisions.

Fixed Maturity Plans (FMPs) are emerging as the latest alternative investment option to traditional fixed deposits (FDs). These closed-end debt funds have a fixed maturity period and are gaining popularity among investors.

Unlike open-ended debt funds, FMPs are not available for continuous subscription. The fund house offers a New Fund Offer (NFO) with an opening and closing date, during which investors can participate. Once the closing date is reached, the opportunity to invest ceases to exist.

FMPs primarily invest in debt instruments such as certificates of deposit, money market instruments, corporate bonds, commercial papers, and bank fixed deposits. The fund manager ensures that the chosen instruments have a similar maturity period as that of the FMP.

One key difference between FMPs and other debt funds is the buy and hold strategy employed by FMP fund managers. Unlike other debt funds that frequently buy and sell debt securities, FMPs maintain a more passive approach. This helps to keep the expense ratio of FMPs lower compared to other debt funds.

When comparing FMPs to FDs, both are similar in that they require investors to stay invested for a fixed duration. They also offer varying maturities to suit investors' preferences. However, FMPs differ from FDs in terms of returns.

While FDs offer guaranteed returns, FMPs provide indicative yields. This means that the actual returns may be higher or lower than the returns indicated during the NFO launch. It's important for investors to understand this difference before investing.

Investors who are looking for returns higher than regular FDs and can tolerate the frequent NAV fluctuations may find FMPs appealing. Although FMPs are considered low risk-low return investments compared to equity funds, they do carry some risk due to restricted liquidity.

Before investing in FMPs, investors should carefully consider the historical returns trends, tax implications, and the investment objective of the scheme. It's also important to be aware of recent developments, such as the requirement to stay invested for at least three years to take advantage of indexation on long-term capital gains tax.

In conclusion, FMPs offer an attractive alternative to traditional fixed deposits for investors seeking higher returns. However, investors should carefully evaluate the risks and benefits before making any investment decisions.

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