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A Rare Rising

FMPs keep rising from their death bed, offer documents filed with SEBI show

Fixed Maturity Plans (FMPs) are debt funds, which cater to investors’ needs for tax efficient instruments as well as serve as a source of predictable returns from fixed income investments (acting as viable alternatives to bank fixed deposits). But, they are going down the popularity charts, even though they offer value to investors.

However, things have not looked good for FMPs over the past one year or so. After almost having their death certificates signed by the Securities and Exchange Board of India (SEBI) in the wake of the October, 2008 crisis, in which FMPs played the villain’s role, that nearly wiped out many asset management companies (AMCs), they made a return of sorts, but went back to the life-support system.

This is not to say that the instrument was to blame, it was more of a case of the global meltdown hitting Indian investors hard, especially institutional investors, who rushed to redeem their FMPs investments, to a scale that could not be handled by the fund industry – they ran out of money to pay back investors.

But a diluted interest remains in the market for the product and that is why we keep seeing AMCs keep filing FMP offer documents with the market regulator.

FMPs are instruments that are subscribed to more by institutional investors, and as such, the sums involved even in a single investment are huge -- retail investors form a small minority. FMPs are close-end schemes that are launched with a fixed-term horizon, generally between 1-to-13 months.

After the October crisis, SEBI had ordered the listing of FMPs on stock exchanges and it banned the practice of disclosing 'indicative yields' -- they predicted the final earnings on investments.

The result was that FMPs new launches dried up completely – the only way to get into them is through NFOs. They revived in March 2009, when just a single plan from Reliance MF, Reliance FHF XII - Series 4, made a collection of Rs 2,000 crore. It indicated that there was demand for the instrument. But, there were just two new FMPs launched in April, none in May and only one in June.

What gave FMPs hope for the future was that they were, after the new rulings came into effect, much more suited to investors' needs. But that positive leading to new launches has been belied.

The state of affairs on the ground is that while 230 FMPs were launched till August in the last financial year, the number is just 3 for this financial year.

However, FMPs new offer documents filed with SEBI keep happening. The reason may well be that, aside from offering tax-saving benefits FMPs also may offer to institutions and corporates the benefits of steady returns in an era of interest rate uncertainty. However, it still remains to be seen, whether these filed documents transfer into NFOs.

FMPs have assets worth Rs 40,400 crore riding on them.

FMPs Awaiting Approval

  • Kotak FMP 370 Days Series I
  • Templeton FHF Series IV
  • DBS Chola FMP Series 12
  • Franklin Templeton Fixed Tenure Fund-Series XIII
  • Franklin Templeton Fixed Tenure Funds-Series XII
  • Principal PNB FMP 91 Days-Series XXI
  • DWS Fixed Term Fund-Series 66
  • DWS Fixed Term Fund-Series 67