I am planning to invest in a fixed maturity plan as my mutual fund investment. Will it be the right thing to go for an FMP in the current market scenario?
-Devika
Fixed maturity plans, or FMPs as they are popularly called, are close-ended funds with a fixed tenure. Such funds invest in a portfolio of debt products whose maturity coincides with the maturity of the fund. The primary objective of a Fixed Maturity Plan is to generate income while protecting the capital by investing in a portfolio of debt and money market securities. The tenure can be of different maturities, ranging from one month to as long as five years. FMPs are effectively quite similar to bank fixed deposits but one that has a lower tax incidence. The advantage of investing in FMPs are that they have less risk of capital loss than equity funds due to their investment in debt and money market instruments. Apart from this, FMPs are not affected much by interest rate volatility when held till maturity. The return on these funds is indicated and is close to the actual returns. If you are not a risk-free investor and look for an assured income, this is the right option for you.
This article was originally published on July 08, 2008.
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