Fixed Maturity Plans
Fixed Maturity Plans or FMPs are a product class offered by Mutual Funds and have gained immense popularity in the last few years given their tax attractiveness vis a vis fixed deposits and the fact that they provide predictable returns very low risk.
FMPs have typical maturity periods ranging from one month to three years and invest in various types of debt instruments such as corporate bonds, government securities, commercial papers, debentures and call money thus offering enough safety for the risk averse investor, a key feature of these investments being that they are made in instruments whose maturity coincides with the time period specified by the scheme.
The tax attractiveness of FMPs derives from the fact that whereas interest accrued on fixed deposits is fully taxable, returns accrued on FMPs are subject to either dividend distribution tax/capital gains tax which are almost 10% lower than the former.
Currently more than 200 FMP schemes are active in the country.
Tags: Daily Funda, Fixed maturity plans, Investing, risk-averse investing
August 25th, 2008 at 12:07 pm
I must say this is a great article i enjoyed reading it keep the good work
October 31st, 2008 at 11:27 pm
Returns by FMP are only indicative. Profit can be less than that earned in FD. AFAIK FMP has a huge exposure in real estate which could be a considerable risk.
Given all that tax benifit is a huge plus.