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Negative returns from FMPs

Investors shouldn't worry because FMPs hold their underlying assets up to maturity, and hence the actual returns will not change

What do we do when FMPs give negative NAV?
Prakash Bhandari

An FMP can give negative returns as the debt papers in which it invests are marked-to-market. This is done to give true value of the underlying asset. However, investors in FMPs shouldn't worry because they will get the same returns as specified at the time of NFO.

FMPs invest in debt papers of same or lower maturity as that of the fund, with the intent of holding them to maturity. This means interest rates and their impact on market value of the bonds is only notional and will not affect the actual returns that would be realised.

Before the crisis of 2008, fund companies used to offer an 'indicative' return. This has now been banned by SEBI, but investors get enough clues about exactly what to expect (9.75 to 10 per cent currently).

Also, since FMPs are closed-end products you can invest in them only during their NFO and cannot redeem until maturity. The only exit option is through exchange where liquidity is very low.



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