What is FMP (Fixed Maturity Plan)
FMP (Fixed Maturity Plan) is a type of Mutual Fund which has a Fixed Maturity date and can have an indicative return on your investment. Usually FMP’s are used by companies and large investors as a substitute to bank fixed deposits.
FMP’s are close-end funds, means that you can enter when it is launched and exit when the term is over. banks.
Will I really get the Indicative Return in FMP?
FMP’s invest money in fixed income instruments (like bonds, government securities, money market instruments etc). They invest in instruments that get matured at the same time as their schemes. Due to this investment strategy the final earning are predictable. Again, the returns are “indicative” not “guaranteed”.
What is the difference between FD and FMP?
FMP’s do not offer an assured return like FD (Fixed Deposit). Unlike bank deposit, you may have to invest a minimum of Rs. 5,000 in an FMP. The main advantage of investing in FMP is its tax efficiency. The interest gained through an FD is added to your income while evaluating tax. Whereas for FMP’s which is longer than an year, you can choose to take all gains as capital appreciation and the tax is merely 10% with indexation benefit or 20% with indexation. For FMP’s with tenure less than a year, an individual can choose to receive the gains as dividends, which will be taxed at 12.5% only.
Hey Priya, I am not really able to get too much out of this article. Firstly, what exactly is indexation benefit? Is it 10% or 20%? And what happens when you withdraw your money prematurely? If penalty is levied, how much penalty does it attract? And, do we need to invest in FMP through any institute or this can be done individually? Do we need to have DEMAT account for the same? Are their any examples of FMP which can be given? Waiting for your response!
Basically, mutual funds are professionally managed investment funds. Such funds are not taxed on their income and profits as long as they comply with the requirements. Moreover, FMP’s are equivalent of the fixed deposits in banks. FMP, so are debt schemes in general and invests in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits.
12.5% tax for less than a year is not only. Fmp’s are usually not as popular cause of number of factors like exit can be made only on maturity, no interest rate as compared to FD’s, if dividend taken than tax levied on it. The only think is they are of comparatively lower time period.
If you are putting your hands in such plans then there is always a risk of loss now and then. So, if you are going for Fixed Maturity Plan, it has its own positive and negative side. The conclusion is invest on your own risk to get profit or loss.
This is a good comparative article for tax savers. It had few basic details differences of FD and FMP. But I would like to know more comparative details on partial withdrawal policy, possibility of loan against FMP if so what is the rate of interest and penalty on loan non repayment.
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