Are you wondering why mutual fund houses are launching FMPs this year? Rushabh Desai, founder, Rupee With Rushabh Investment Services, based in Mumbai, says the reason could be the current attractive yields in the money markets. “The yields are still high comparatively. We are going to see interest rates probably falling from next year or so. At this point of time, the fund houses would want to take advantage of the high yields and attract fixed income investors. When interest rates start to fall, at mark to market level there will be good appreciation in debt mutual funds,” says Desai.
Another reason could be the Sebi mandate that has restricted the launching of schemes per category. “Sebi restricted fund houses to have one scheme in one category. In the case of FMPs, there is no limitation of launching a number of schemes. So, fund houses are launching FMPs,” added Rushabh Desai.
Fixed maturity plans are close-ended debt funds. Their investment portfolio is closely aligned to the maturity of the scheme. AMCs tend to structure the scheme around pre-identified investments. FMPs have an expiry date, after which the money is given back to the investors. FMPs invest in corporate bonds, CDs, CPs, government securities and other money market instruments.
Large mutual fund houses such as Kotak Mutual Fund, Aditya Birla Sun Life Mutual Fund, SBI Mutual Fund, Mirae Asset Mutual Fund, and Nippon India Mutual Fund are coming up with fixed maturity plans in August and September. SBI Mutual Fund and Kotak Mutual Fund are leading with the maximum number of FMP launches. At present, no FMP is open in the market for investment.
Should you invest?
FMPs are suitable for investors who want an investment option that is almost similar to bank fixed deposits. FMPs offer almost predictable returns. They also offer an exit option through the stock exchanges. However, investors should note that the secondary market for FMPs are extremely illiquid and they will have to sell investments at a discount. “I do not recommend FMPs to investors whether it is short or long term. FMPs being a close-ended product, investors can not pull out the money in between. Always look at credit quality of the FMP as well. If an investor needs liquidity or wants to pull out money in case of any crisis event, this is possible in open ended products. If someone wants to invest in a debt mutual fund, I think an open ended product would be much much better than a close ended product,” says Rushabh Desai
“In the short-term horizon, I recommend investors to go for probably a low duration fund or short term bond fund,” he added.
