Fixed Maturity Plans

Fixed maturity plans, or FMPs, are close-ended debt mutual funds. With this fund, you can invest in debt instruments, including money market instruments, certificates of deposits, corporate bonds, government securities, etc. 

 

However, these securities have a stringent lock-in period ranging from 1 month to 3 years or more. Therefore, unlike other debt mutual fund schemes, you cannot buy and sell these funds as per your requirements. 

In addition, these securities are not available for subscription all the time. Fixed maturity plans are only open for investment when AMCs put up New Fund Offers (NFOs).

Some top features of a fixed maturity plan that differentiate it from other debt fund schemes are:

• Fixed Lock-In Period

As the name suggests, these funds have a prescribed lock-in period where you cannot liquidate your assets. With a lock-in period, the fixed maturity fund eliminates the risk of interest fluctuation in debt markets. As such, this scheme enables you to get maximum returns with relatively low risk. 

• Close Ended Scheme

A fixed maturity plan is only available for investment during the NFO period. These funds are limited, and once the investment window is closed, you can only access them through the stock market. 

• Lower Risk Profile

Fixed maturity plan mutual fund offers the security of debt instruments against market and interest rate fluctuations owing to it being a close-ended scheme. Furthermore, FMPs generally have investments in debt instruments with good ratings. This results in low risk and more stability. 

• Indexation Benefits

Fixed maturity plan mutual fund offers indexation benefits when you hold the investment for at least 3 years. Indexation helps reduce your tax liability, allowing you to further add to your corpus. 

 

Moreover, many FMPs have a maturity period of 1,100 days, enabling you to benefit from double indexation. This is because in this case 1,100 days means holding your investment for four financial years instead of three.  

• Portfolio Diversification

Fixed maturity plan funds generate returns by investing in several debt instruments. Here, the risk gets distributed as you aren’t restricted to just one option. As such, fluctuations in the market will have a lower impact on such funds, as the securities offset losses.

• Predictable Returns

A fixed maturity plan invests primarily in corporate bonds, government securities, money market instruments, etc. The maturity date of a fixed maturity plan aligns with the investment timeline of such instruments. 

 

This helps you get a relatively fixed interest rate at maturity, allowing you to assess the approximate returns beforehand.

• Investments in High Quality Assets

Another attractive feature is that portfolio managers choose debt instruments from profitable and renowned companies. This enhances the probability of getting higher returns on your fixed maturity plan. 

 

Also, investing in high quality assets reduces the risk associated with the investment.

If you want to invest in FMPs, here are some advantages you must consider. 

• Higher Stability

FMP in mutual funds generally remain unaffected by stock market instabilities but may offer better returns during inflation and recession. This is because, during this time, investors move towards instruments with lower risk. So, the value would rise, and you could earn better returns. 

• Tax Efficiency

Fixed maturity funds are comparatively more tax efficient than other debt instruments when held for over 3 years. In most cases with debt instruments, the interest earnings may be added to your net income and they will be taxed as per your income tax slab. 

On the other hand, FMP in mutual funds, as mentioned above, offer indexation benefits. This ultimately reduces your tax liability, making it a better choice.

Investing in a fixed maturity plan has many benefits compared to FDs, equity funds, and other debt funds. However, it is not without any limitations. 

• Lower Yield Than Equity:

The returns on fixed maturity funds are lower than equity funds because the interest rates are stable throughout the maturity period. Moreover, returns from FMPs are not guaranteed as it is still market-linked investments.  

• Low Liquidity:

Due to the strict lock-in period, making a partial withdrawal from your investment is more complicated for FMPs. If you want to liquidate your asset, you can do so through the stock exchange where the scheme is listed.  

 

With these facts in mind, you can decide whether or not a fixed maturity fund is an ideal investment option. If you have a lower risk appetite and do not mind the lock-in period, FMPs can help you get better returns than an FD. 

You can start investing in a fixed maturity fund or any other mutual fund on Bajaj Markets. You can choose from some of the best-performing funds and start investing with just a few clicks.

When comparing multiple investment avenues, you may have noticed the similarities between a fixed maturity plan and a fixed deposit. While they share some similarities, there are differences worth noting.

Factors	Fixed Maturity Plan	Fixed Deposit
Returns	Returns may be higher or lower than those indicated during the launch	Guaranteed returns
Taxation	Required to pay Dividend Distribution Tax (DDT) in the dividend option If choosing growth mode, investors must pay capital gains tax	Taxed as per income tax slab
Liquidity	Deposited sum cannot be redeemed prematurely	Deposited sum can be redeemed, but a small penalty fee will be levied

 

Choosing an investment option depends on your investment goals, risk tolerance and personal preference. Investing in fixed maturity plans is ideal if you need higher returns than the returns you earn from regular FDs. 

 

Remember that the Net Asset Value (NAV) of the fund fluctuates frequently. Thus, invest if you can tolerate frequent fluctuations in the fund’s NAV.

 

Fixed maturity plans are less risky and offer lower returns than regular equity mutual funds. However, they offer higher returns when compared to fixed deposits. Another point to note is the restricted liquidity. Since premature withdrawals aren’t possible, it is only suited for investors that can handle strict lock-in periods.

Investing in a fixed maturity plan has its pros and cons, and here are some essential pointers to remember.

• Investment Goal

Before finalising an investment, assess your personal investment goals as well as the investment objectives of the scheme. This will help you decide if your investment objectives align with those of the funds. Then, you can decide on a suitable investment amount.

• Returns and Liquidity

While choosing an investment, pay attention to the returns that you can get and the liquidity that the fund offers. A fixed maturity plan may offer higher returns in the long run, but it is essential to note that these returns are subject to market fluctuations.

 

Note that these plans do not offer liquidity, which means you cannot redeem the funds before maturity.

• Tax Implications

Investing in a fixed maturity plan is ideal as you can enjoy lower taxation on long-term capital gains. On the contrary, the interest earnings on an FD are taxed based on your income tax slab.