I am a risk-averse investor. I want to know why FMPs have not done well in the past few months. Has there been any specific case of FMPs defaulting?
-Sanjay Sharma
There has been no case of an FMP defaulting since 2008, which was when the rules for these funds were changed. In the past few months, FMPs have not been getting any money simply because the rate outlook has changed. Fixed income investors believe that they will stand to benefit more by investing in long-term bond funds because the interest rates are expected to go down. This is why dynamic bond funds and gilt funds have seen substantial inflows in the past couple of months.
FMPs are insulated from downside risks, but since they have a defined investment timeframe, they're less likely to do well in the current interest rate scenario.
This article was originally published on November 30, 2012.
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