What is Fixed Maturity Plans (FMPs)?
- Secure, expected and improved post-tax profits other than fixed deposits by banks
- Increasing rate of interest not only means increasing EMIs but also given an opportunity to earn better returns. Debt schemes offer attractive returns with short term rates between 8-10%. Call money moving higher to about 7.5-8% because of tight liquidity conditions. As RBI has decided to increase CRR, the liquidity conditions have turned bad. Monetary tightening is likely to continue until the end of the financial year and investor may consider investing in short term options like FMPs or floating rate schemes. The fixed maturity plans are popularly known as close ended funds as they have fixed tenure. These funds usually invest in debt products whose maturity agrees with maturity of the product.
- The objective of FMP is to produce profits while taking care of capital by putting the funds in portfolio which consist of debt & money market securities. The tenure of these securities can be of diverse maturities, which range from one month to five years. FMPs are compared to bank FDs. While FDs offers 'guaranteed' return, and the returns in FMPs are analytical. Characteristically, the trust fixes the 'target amount' for scheme, which is tied up informally with borrowers ahead of scheme opens. This way the interest rate is earned on investments which offer indicative return to investors.
