A fixed Maturity Plan (FMP) is a type of debt mutual fund that invests in debt instruments like government bonds, corporate bonds, and money market instruments with a fixed maturity period. FMPs have a fixed investment horizon, typically ranging from one month to five years. In India, FMPs are a popular investment option among investors looking for stable returns and tax efficiency.
Benefits of a Fixed Maturity Plan
- Predictable Returns: FMPs offer a fixed rate of return, which provides investors with predictable returns. This feature makes them a suitable investment option for risk-averse investors who want to minimize their exposure to market volatility.
- Tax Efficiency: FMPs are a tax-efficient investment option for investors in India. FMPs with a maturity period of more than three years qualify for long-term capital gains tax, which is currently at 20% with indexation benefits.
- Diversification: FMPs invest in a diversified portfolio of debt instruments, which helps to spread the risk across different assets, reducing the overall risk of the portfolio.
- Low Cost: FMPs are typically low-cost investment options, with expense ratios that are lower than those of actively managed mutual funds.
- Liquidity: FMPs have a fixed maturity period, but investors can sell their units on stock exchanges before maturity. However, the liquidity of FMPs depends on market conditions and demand for the fund.
Who Should Invest in a Fixed Maturity Plan?
Who Should Invest in a Fixed Maturity Plan?
- A fixed maturity plan may be a suitable investment option for investors who:
- Are Seeking Stable Returns
- Want Tax Efficiency
- Want a Diversified Portfolio
- Have a Short-to-Medium-Term Investment Horizon
- Want a Low-Cost Investment Option
