What Are Fixed Maturity Plans? || Best of Investor Education

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In this video by ‪@sbimutualfund‬ You will learn all about fixed maturity plan, its advantages, risk factors and how you can save tax by investing in FMP. Do let us know in the comment section below if you have any questions or need more videos on such topics.

A Fixed Maturity Plan or FMP is a debt fund with a defined maturity profile. These are closed funds that can only be invested when a new fund offer (NFO) is opened. A fund manager invests in bonds or money market products. Before the NFO, he cannot join the FMP or exit early. FMP tenures vary from 30 days to 5 years. Subscription plans have the following features:

FMP tenures vary from 30 days to 5 years. Once a fixed-term plan ends, you cannot withdraw or invest additional funds until maturity. So you need to know tenure before investing in an FMP.

Interest rates are usually announced when new fund offerings are announced. FMP rates are the least affected by market volatility as the funds are invested in bonds. Because these investments are held to maturity, they are also less interest rate sensitive. This allows you to pre-calculate the actual return on investment for fixed-term plans.

Fixed-term income is generated by investing in bonds such as government and corporate bonds, certificates of deposit, commercial paper, securitized bonds, non-convertible bonds, and treasury bills. Fund managers typically construct such portfolios with minimal overall corpus risk, as equity market volatility has relatively little impact on a fixed income.

Most FMP tenure he is more than three years. Investments are therefore subject to long-term capital gains tax, which includes the benefits of indexing. Indexing helps investors account for inflation and improves tax efficiency on profits.

The Main Advantages Of Investing In Fmp Are:

Low-risk level: These funds invest in highly rated bonds and money market securities of established companies and are, therefore, less risky. Fund managers select only the best stocks to construct their portfolios.

Stability: As FMPs are locked in for a certain period of time, your investment will experience market ups and downs. This helps the performance of these funds remain stable over time. FMPs are known to be one of the least affected investments by market movements.

Let’s discuss some risks.

Market risk: This is the possibility that the NAV of the fund will fluctuate due to price fluctuations in the underlying security. Several macro- and microeconomic factors contribute to market risk.

Credit risk: This is the probability that a fund's NAV will collapse due to a change in the credit rating of the fund's underlying assets. Credit risk is the risk that the issuer of a security is not bound by an agreement to pay the coupon and return the principal invested at maturity.

Liquidity risk: This is the risk that the fund manager will not be able to sell the underlying assets without incurring large losses.

A fixed maturity plan is an ideal investment if you want to lock in your investment for a specific period of time. You can achieve short or long-term goals and predict return rates according to your FMP's maturity profile. The best mutual fund maturity plans offer stable investment options compared to most open-ended debt funds. It also adds some diversity to your debt fund portfolio.


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