Home : About us : Blog

Fixed Maturity Plans Simplified

Fixed Maturity Plans Simplified

What comes to your mind when you think of terms, such as ‘fixed’ and ‘maturity’? If you are thinking of debt investment, you are correct.

But what exactly can be a fixed maturity plan?

A Fixed Maturity Plan (FMP) is a kind of debt-based mutual fund which is closed-ended in nature. Meaning, you invest in a debt mutual fund with a fixed tenure. This fund invests majorly in fixed income instruments whose maturity period is in sync with the maturity of the fund.


Features of Investing in an FMP

  • Closed-ended

    As discussed above, FMPs being closed-ended are redeemable only after the maturity period, except through the stock exchange.

  • Predictable Returns

    FMPs invest in fixed income instruments like Commercial Papers (CP), Corporate Bonds, Certificate of Deposits (CD), Non-Convertible Debentures (NCDs) of reputed and high rated businesses, G-secs, money market instruments and more.

    The maturity date of an FMP is closely aligned with the maturity period of these instruments. Therefore, FMPs can yield a relatively fixed rate of return on maturity. Also, you get to know your approximate returns (on maturity), in advance, at the NFO (New Fund Offer) stage itself.

    Therefore, if you are looking for investments with relatively predictable returns on maturity, FMPs can be a suitable option.

  • Lower Risk Profile

    Looking at the nearly predictable returns offered by the FMPs, it can be said that they have a lesser exposure to interest rate risk. Also, these funds generally invest in high rated instruments. This can lower the risk of default or credit risk.

  • Indexation Benefits

    Let’s understand indexation benefit in an FMP with an example:

    Consider, you invested in an FMP before March 31, 2021, and its tenure is slightly longer than four years or 1095 days. Your plan would mature somewhere after April 1, 2024.

    In this case, you are holding your investment for four financial years instead of three. In this condition, you can claim indexation benefits for four years, which can effectively reduce your tax liability.

  • Can Help in Portfolio Balancing

    Having an FMP in your portfolio can help you add stability and balance the market risk for an equity-heavy portfolio. Therefore an FMP can be a suitable asset allocation tool for portfolio balancing.

    Along with the benefits, there are a few things you should be careful about while investing in an FMP. One of them is the credit rating of FMPs by reputed rating agencies. It is essential to check the rating profile of the fund before investing.

    Another important aspect is your goals. Considering the redeemability factor of FMPs, it would be better to align our investment goals with maturity.

    This is because you might have to wait till maturity to redeem these investments. You may seek financial advice from a professional financial advisor for the same before investing.

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

chatbot icon
Declaration

The information and data contained in this Website do not constitute distribution, an offer to buy or sell or solicitation of an offer to buy or sell any Schemes/Units of Tata Mutual Fund, securities or financial instruments in any jurisdiction in which such distribution, sale or offer is not authorised. The material/information provided in this Website is for the limited purposes of information only for the investors. In particular, the information herein is not for distribution and does not constitute an offer to buy or sell or solicitation of an offer to buy or sell any Schemes/Units of Tata Mutual Fund, securities or financial instruments to any person in the United States of America ('US')/Canada.

Currently, the funds of TATA Mutual Fund have not been registered under the United States Securities Act of 1933 (the 'Securities Act') or under the securities laws of any state and the funds have not been registered under the Investment Company Act of 1940 (the 'Investment Company Act') of the United States. Units in the funds are therefore not being offered or sold within the United States/ Canada or to United States/ Canadian Persons.

By entering this Website or accessing any data contained in this Website, I/We hereby confirm that I/We am/are not a U.S. person, within the definition of the term 'US Person' under the US Securities laws/resident of Canada. I/We hereby confirm that I/We are not giving a false confirmation and/or disguising my/our country of residence. I/We confirm that Tata Mutual Fund/Tata Asset Management Limited (TATA AMC) is relying upon this confirmation and in no event shall the directors, officers, employees, trustees, agents of TATA AMC associate/group companies be liable for any direct, indirect, incidental or consequential damages arising out of false confirmation provided.