Fixed maturity plans, or FMPs, are close-ended debt mutual funds. With this fund, you can invest in debt instruments. This includes 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 or NFOs.

 

Read on to know more about FMP in mutual funds, its advantages and limitations, and features. 

Features of Fixed Maturity Plan Mutual Fund

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 new fund offer or 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 a period of 1,100 days means holding your investment for four financial years instead of three.  

Benefits of Investing in Fixed Maturity Plans:

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

While both have similar lock-in periods, fixed maturity funds are more tax efficient as compared to FDs held for more than 3 years. This is because the interest earnings from FDs will add to your net income and get taxed under the appropriate 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. 

Limitations of a Fixed Maturity Plan

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.

FAQs on Fixed Maturity Plan

FMP in mutual funds is excellent for investors with a low-risk appetite and those who can ride through the lock-in period without any liquidity issues. These funds also offer indexation benefits, making them ideal if you want to save on taxes.

Yes. Fixed maturity plans or any other debt fund are stable and secure as the investment generally happens in instruments with good stability ratings.

While FD and FMPs have fixed maturity periods, some differences make FMP a better option. Firstly, the returns on fixed maturity plans can be comparatively higher than FDs. Additionally, FMPs offer better tax benefits than fixed deposits.

A fixed maturity plan is a good option if you want higher returns with low risk. However, with these funds, you get an indicative yield. As such, your final return may be higher or lower than indicated. Therefore, like any other investment option, it is not completely void of risks.

Up-Arrow
0

Fund Added to Compare

COMPARE NOW

Clear All

Minimize Image
Cancel Icon

Search Mutual Funds & Add to Compare