Fixed maturity plans back in business

Fixed maturity plans back in business

Mumbai: Nearly 40 new fund offers have mopped up at least Rs6,000 crore from February to April, according to data available with mutual fund tracker Value Research.

A fixed-maturity fund (FMP) from Reliance Mutual Fund collected at least Rs2,000 crore and another from SBI Mutual Fund raised at least Rs1,000 crore.

“Tax efficient and predictable returns of a reasonable kind cannot be delivered by an open-ended income fund. So FMPs have a role," said Dhirendra Kumar, chief executive officer of Value Research. “But FMPs are unlikely to find their old stature where new money worth Rs80,000 crore was flown in 2008... I don’t think this can be achieved very quickly, but FMPs will exist from the current format and they still have potential."

Last year, fund managers made large investments in real estate companies to achieve better returns on their FMPs. When real estate companies tripped, investors panicked, which led to redemptions. Then came market regulator Securities and Exchange Board of India’s stringent directives in January that made listing mandatory.

The market regulator also banned premature redemptions and indicative returns.

This has led to caution among fund managers. Portfolios of the top five FMPs show that at least 90% investments have been made in relatively safe bank debentures and certificate of deposits.