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You can invest in FMPs only during the offer period

If you need a fixed duration product (say, in lieu of your FDs), you can definitely consider FMPs.

Is it a good time to invest in a fixed maturity plan (FMP) at the moment? I already have systematic investment plans (SIPs) running in a large- and a mid-cap scheme. I also have an income fund.

—Varuni

Investing in equity funds using SIPs and FMPs are not directly comparable. While they are both funds, they differ in terms of the investment needs they are set-up to fulfil. Equity fund SIPs are designed for regular and patient investing over the long-term. People can invest in them at any time and exit whenever they wish.

FMPs are fixed duration products like fixed deposits (FDs) in which investors can invest only during the new fund offer period and have to mandatorily exit when the duration gets over. For example, if you invest in a 370-day FMP that is in the market today, the mutual fund will automatically redeem the units at the end of the tenor and deposit the proceeds in your bank account.

If you need a fixed duration product (say, in lieu of your FDs), you can definitely consider FMPs. Thanks to the debt market conditions, there are plenty of attractive FMP offers in the market at this time. Look at the offer document of the schemes to ensure that the fund is not planning to take any undue risk in terms of exposure to low grade debt instruments in their portfolio in an effort to maximize returns.

A large-cap equity fund that I have invested in through an SIP has not been giving positive returns for the last two years. Do you think I should stop my SIP and invest elsewhere?

—Zarina Mohammad

According to data from Value Research, a mutual fund tracker, over the last two years, the best large-cap equity fund has returned 12.5% annually, while the worst has returned -25% annually. The fact that the fund that you have invested has given negative returns may indicate that you have made an unfortunate choice in this category. You can verify if that is the case by comparing its returns with those of its peers and its benchmark for different long-term investment time frames. If the fund has underperformed one or both, then you will do well to stop the SIP and move to a better performing fund in the same category. You can choose from the Mint50 list of funds.

On the other hand, if indeed your fund is doing well relative to the market and the category, then I would counsel patience. For a good equity fund that has done well historically, two years is a short period of time to evaluate its performance. Especially in a market such as we are witnessing at present, it is not a good idea to exit funds with good track record. It would be better to ride out the market and wait for the returns to materialize.

Queries and views at mintmoney@livemint.com

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