Why should you invest in Fixed Maturity Plans or FMPs
Last updated on January 23rd, 2019
Best time to invest in Fixed Maturity Plans (FMP) is here.
First, what is an FMP?
FMPs are close-ended funds where maturity can range from 3 Months to a 3 years period. So a 3-year FMP, just like a Fixed Deposit, on maturity will end and the customer bank account will be credited with the principal investment and the returns. The Mutual Fund Manager invests in fixed income instruments like Government Debt, Public Sector Undertaking (PSU) Debt, Commercial Paper (CPs), Certificate of Deposits, money markets etc with the same maturity as the as that of the scheme. The fund manager will hold these investments to maturity to realize returns for the investors at the locked in yield. Therefore this ensures that the FMP investors will end up getting the returns as per the yields at the time of the investment.
Who can invest in FMPs?
All resident Indians and NRIs can invest in FMPs.
How are FMPs advantageous to the investor?
Advantages of FMPs
- Higher Returns than Fixed Deposits: Almost all FMP yields are higher than the Bank Fixed Deposit Rates. Thus investors can generate better returns than fixed deposits by investing in them. An investor can look at the existing 3-year bond yields to estimate the returns from an FMP.
- Lock-in your Returns and beat the market volatility: FMPs can be very beneficial in rising Interest rates or volatile markets as they lock-in the returns for the investors at the current yields. This essentially means that even if the interest rate movement is not conducive for the investors they will still be able to get the returns as per the yields at the time of the investment. Essentially, FMPs become very good investment vehicles when Interest rates are expected to rise in the coming time.
- Tax Indexation Benefits: The most popular FMPs are the ones with 3 years plus maturity. Since debt funds offer tax indexation benefits if held for more than 3 years period, investors can generate much better post-tax returns than Bank Fixed deposits by claiming this benefit as tax indexation is not allowed on Bank Fixed Deposit interest. Tax indexation is a very important concept that must be understood by all investors. Indexation helps in inflating the purchase price of your Debt Mutual Fund investments to the new inflation-adjusted amount and when you calculate your Capital gains as per the inflation-adjusted purchase price, your capital gains are reduced by a big margin bringing down your taxation.
This is how Tax indexation works:
*** Investors can claim 4 indexation benefits in an FMP with 3+ years of maturity as well. For example, an FMP purchased in Jan-Mar 2019 with Maturity after April 2022 would be eligible for 4 indexation benefits (for Financial Years 2018-2019, 2019-2020, 2021-2022 and 2022-2023). Since most of the available FMPs right now come with 4 indexation benefits, this is the best time to invest in FMPs.
How to invest in FMPs through Upwardly?
We make it absolutely simple for our investors to invest in FMPs. You can do it completely online. Here is what you should do:
- Call up / Email Upwardly Helpdesk (73377 40002 / firstname.lastname@example.org) and inquire about the ongoing FMPs. Our customer service team would inform you on the various FMPs available and their features. You can then choose the one best suitable for you.
- Once your order is placed, you can make the investment through your bank account through the Payment Gateway.
- Once the FMP allocation comes the same would be visible on your Upwardly Dashboard
- On maturity, the FMP would be closed automatically and the principal invested and the returns would be credited to your bank account.
Happy Investing !!!!