Fixed Maturity Plans (FMPs) in India

FMPs have emerged as favourites by simply combining small investments, assured returns and tax savings. By investing in debt instruments with the intent of holding them to maturity, FMPs are appearing to be a safer haven for all those who are fed up with falling share prices. Anybody, with a one month period could go in for liquid funds but those with 3-9 months time may opt for FMPs.

With more than 27 fund houses having launched FMPs with tenures ranging from 3 months to a few years, FMPs are possible alternatives to fixed deposits in banks.

Advantages:

1. The minimum investment amount is Rs. 5000.
   
2. FMPs offer good fixed income.
   
3. Interest earned on a fixed deposit gets added to the investor’s income. This can mean an outgo of 33% tax for deposit holders in the highest tax bracket. But in FMPs, which have a tenure of more than one year, investors can choose to take all gains as capital appreciation, which result in taxation only at 10 % without cost indexation benefit (adjusting for inflation) or 20% with indexation. In short duration FMP schemes, if the investor receives the gains in the form of dividends, then individual investors will get taxed at 12.5% of the returns.

Risk-averse investors and especially those falling into the higher tax brackets should go for these products. Still, investors would do well to consult their investment advisors/financial planners to determine what avenue will be most suitable to them.

Fixed Maturity Plans are subject to market risks.