Serial or Fixed Maturity Plans (FMP) have now caught the fancy of mutual funds. After AMCs like Prudential-ICICI, Standard Chartered and Kotak, HDFC and Alliance mutual funds have plans to roll out Fixed Maturity Plans (FMP). The launch now awaits SEBI approval.
Fixed Maturity Plans are ideal for investors, who want to lock-in their funds at a fixed yield. As the yield to maturity is set in the beginning, serial plans are relatively insulated from short-term interest rate gyrations. Thus, unlike bond funds, they protect assets from interest rate volatility while generating higher returns than cash funds.
HDFC AMC's proposed fund would be christened "HDFC Fixed Investment Plan". The fund plans to offer a series of four plans every month with the maturity stretching up to 13 months. On the other hand, Alliance AMC's "Alliance Term Plan" will offer a 98 days maturity plan every week and bear a face value of Rs 1000 each.
The minimum investment in the HDFC-FIP will be pegged at Rs one crore while for Alliance, it will be Rs 50 lakh. HDFC AMC plans to charge an exit load of one per cent for withdrawals made before maturity of the plan, but for the investor in Alliance TP, it will cost five per cent to pull out before maturity. This is aimed to prevent any distortion in yield since the fund is forced to liquidate its holdings before maturity.
With an investment mandate consisting of debt and money market instruments, HDFC-FIP will seek to generate regular income and the Alliance TP will seek capital appreciation in addition to the regular income for investors.