The pet peeve in the mutual fund industry is the lack of growth. Yet, one class of funds that routinely finds favour among investors — institutional and retail alike — is the fixed maturity plan (FMP). FMPs are closed-end debt funds that invest in government securities and company debt. An unimpressive stock market and confusion over the direction interest rates will take has meant that a lot of retail investors are also buying into FMPs. However, FMPs as a product category were created as a pass-through vehicles for institutions to park their cash reserves for better yields at low risk.
With no rating and evaluation on FMPs available, we decided to undertake the exercise to evaluate how FMPs have fared across AMCs. First, of the 44 AMCs, there are 10 AMCs that do not focus on FMPs at all. These include Morgan Stanley, Goldman Sachs, Quantum, Daiwa, Peerless, Mirae, besides new AMCs like Motilal Oswal, Union KBC, IIFL & Indiabulls. Next, we analysed only those FMPs launched from January 2009 to take into account FMP reforms initiated by Sebi in December 2008. The reforms banned FMPs from stating indicative yields on new schemes, ended the early exit option and banned FMPs from investing in fixed income instruments with maturity beyond the tenure of the scheme.
Of the 964 FMPs launched and redeemed since January 2009, we categorised the schemes into those with less than 1-year maturity and those with over 1-year maturity. We then calculated the average return and count of the schemes for each AMC and found that the difference between the best and the worst from the list was not as stark to point out a clear outperformer or loser.
If the average return for FMPs with less than 1-year maturity was 9.09 per cent, the average return for FMPs with over 1-year maturity was 8.8 per cent. What comes out from this is that one should invest in an FMP taking into account the month when the scheme was launched and the then prevailing interest rates. There is very little to indicate one AMC to be better than the other when it comes to FMPs.