Fixed Maturity Plans (FMPs) invest in various types of debt instruments such as corporate bonds, debentures, government securities, commercial papers, call money, etc. The key point in the investment strategy followed by these plans is that investments are made in instruments whose maturity will coincide with a specific time period indicated in advance by the mutual fund. As a result, FMPs carry least interest rate risk. In other words, the objective is to lock-in the investments at a specified rate of return thereby immunizing the scheme against market fluctuations.
Why FMPs are more lucrative than Bank FDs?FMPs have maturities ranging from one month to two years or even more. Therefore, investors who are sure about the time periods for which they can keep the money invested, FMPs are an ideal option as they offer not only predictable returns but also are tax efficient than bank deposits. The key, however, is to select an appropriate option i.e. dividend or growth. For an investor who invests in a short term FMP i.e. say 3 months or 6 months and is in a higher tax bracket, dividend option would be ideal. On the other hand, for an investor who invests in one year FMP, growth option would be better.
Why FMPs are more lucrative than Bank FDs?FMPs have maturities ranging from one month to two years or even more. Therefore, investors who are sure about the time periods for which they can keep the money invested, FMPs are an ideal option as they offer not only predictable returns but also are tax efficient than bank deposits. The key, however, is to select an appropriate option i.e. dividend or growth. For an investor who invests in a short term FMP i.e. say 3 months or 6 months and is in a higher tax bracket, dividend option would be ideal. On the other hand, for an investor who invests in one year FMP, growth option would be better.
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