Kotak FMP Series 308-322 of Kotak Mahindra Mutual Fund, Nippon India Fixed Horizon Fund XLV – Series (1-5), Axis Fixed Term Plan – Series 112-117 (15 Days to 60 months), IIFL FMP XXXXD Series 1, Mirae Asset Fixed Maturity Plan – Series V (Plan 1 to Plan 6) and IDFC Fixed Term Plan – Series 201 to 202, are pending for approvals with Sebi.
So why a sudden rise in the number of FMPs? The short answer is that AMCs want to cash in on the rate scenario and give investors an option to lock their investments for more than three years to benefit from the likely shift in rate cycle and taxation.
“With the rate hike cycle almost at its end, mid and long duration debt investments are now becoming attractive from an investment perspective. Hence, these funds are launched to capitalize on this opportunity. However, this opportunity might not be for all investors. For investors looking to invest in mid-duration debt options, FMPs are closed-ended and mature after three years making them more tax efficient compared to fixed deposits. So, we can say that it is a close dupe of a bank fixed deposit,” says Harshad Chetanwala, founder, My Wealth Growth, a wealth management firm based in Mumbai.
With interest rates at higher levels, traditional saving instruments like FDs have started looking attractive to investors. Similarly, fixed maturity plans (FMPs) and target maturity funds have become relatively more attractive. Hence, both these categories are seeing new schemes every other day. However, it doesn’t mean mutual fund investors should jump the gun. Mutual fund advisors say that if investors want to reap the benefits of the interest rate scenario, TMFs are a better option than FMPs.
“The important thing is that FMPs lack liquidity. Even if you have the necessary time to lock -in your funds, it is an added advantage that you can pull your money out in case of an emergency. FMPs want to capture a recall value among a certain section of debt investors. Those who are okay locking their money in FDs can lock it in FMPs instead. The advantage is visibility of returns at better taxation. But I say that Target Maturity Funds would do the same job for you,” says Joydeep Sen, Corporate trainer and author.
These experts say that for HNIs and corporates FMPs can be better because there is no iteration of money from the portfolio and hence no hit to the NAV. In that case because the corpus is big, the closed-ended structure of FMPs can work better. However, for a retail investor, FMPs don’t make sense anymore.
