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Tata Fixed Maturity Plans (FMPs)

Tata Fixed Maturity PlanX

  • Particulars Fixed Deposits Debt Fund returns without indexation Debt Fund returns with indexation
    Amt Invested 100000 100000 100000
    Annualized return* 10.00% 10.00%^ 10.00%^
    Total value at maturity 1,33,100 1,33,100 1,33,100
    Initial cost of acquisition 100000 100000 100000
    Gains on investment 33,100 33,100 33,100
    Indexed cost of acquisition NA NA 134810
    Taxable income 33,100 33,100 0#
    Applicable tax rates 30.90% 10.30% 20.60%
    Tax liability 10228 3409 0
    Post Tax return 22,872 29,691 33,100
    Post Tax return (%) 7.11% 9.05% 10.00%

    *Returns are assumed at 10% across the product to show the impact of taxation on capital gains from Debt mutual funds and income from Fixed Deposits

    Cost Inflation index for last 3 years:
    2012-2013 852
    2011-2012 785
    2010-2011 711

    Assuming the investments are for 3yrs starting the financial year 2010-11

    ^ Gross return before expenses. Interest calculation is assumed on yearly cumulative basis. The tax rate is assumed at the highest rate based on the current tax slabs. Please consult your tax advisor for tax implication & further details. Interest rate on Fixed Deposits and Debt Funds is assumed as 10% for the purpose of calculating Annualized Returns and the actual returns may vary depending upon the prevalent market conditions and rates. Applicability of any change in income tax rates may affect post tax returns significantly.


    Cost Inflation Index is based on CII for the investment year and the year of redemption (Year of redemption -2012-2013 – CII=852, Year of investment 2010-2011 – CII=711).


    # Taxable income is Zero as the Indexed Cost of Acquisition Rs. 1,34,810 is greater than the maturity value of Rs. 1,33,100.


What are FMPs?

A fixed maturity plan (FMP) is a closed-ended debt scheme, wherein the duration of debt papers is aligned with the tenure of the scheme. So a one-year FMP will invest in debt instruments that mature in one year or just before this period. This synchronized maturing minimizes the interest rate or reinvestment risk and thereby benefit from the interest rates accrual to the fixed tenure. Ideal for investors looking for investing for a fixed time period and minimize the interest rate risk on their investments.

Why should one invest in FMPs?

Fixed Maturity Plans provide the below given benefits:

  • Lower interest rate risk as it predominantly invests in debt securities matching the maturity of the plan
  • Tax efficient returns as compared to interest income from Fixed Deposits for investors falling in higher tax brackets
    For illustration click here
  • Indexation benefit for investments of more than 1 year
  • However, FMP’s are close-ended funds hence, one needs to consider their liquidity needs before investing in FMP’s. FMP’s are listed on the stock exchange and can be traded on the exchange platform.

     

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