Term of the day: What are fixed maturity plans (FMPs)
1 min read 16 Jul 2018, 12:10 PM ISTFMPs are meant for investors who wish to lock their money at attractive yields prevailing at a given time.
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A fixed maturity plan (FMP) is a closed-end debt mutual fund scheme. Think of it like a fixed deposit where you put your money for a specific period and get it back with interest on maturity. An FMP looks similar. It comes with a specific tenure. When the scheme matures, you get back your money along with some appreciation. Since an FMP is a closed-end scheme, you cannot withdraw before maturity, but you can sell it on the stock exchange. To ensure that your FMP doesn’t take unnecessary risks, it is required to invest in scrips that mature just before the scheme itself. Launched mainly before the end of a financial year, it offers (indexation) tax benefits if you stick around till maturity, which is usually three to four years.
FMPs are meant for investors who wish to lock their money at attractive yields prevailing at a given time. If interest rates seem high, FMPs are a good option as they buy securities that offer high yields. Since debt funds come with interest rate risks- interest rates and prices of debt securities move in opposite directions, an FMP entails that investors stick around till maturity and earn the yield at which your FMP buys the underlying scrips.
