The better way out of a troubled fixed maturity plan for investors
FMPs are market-linked instruments and are, therefore, exposed to the return and risk characteristics of the underlying bonds in the portfolio
Investors must recognise the risky nature of these products, and fund managers must turn more cautious as FMPs are often sold as replacement for FDs. They aren’t.
In the past few days, two fixed maturity plans (FMPs), from Kotak Mahindra Asset Management Co. Ltd and HDFC Asset Management Co. Ltd, have faced trouble due to their exposure to Essel Group’s debt papers. In one case, investors got most of the payment, but the AMC held back some units until the recovery of money from Essel Group. In the other, the AMC rolled over the FMP for clients who agreed to it. In the coming months, the trouble may spread to FMPs of other fund houses having exposure to Essel Group. Shaikh Zoaib Saleem asked experts which of the two ways is better for investors: