Fixed Maturity Plans (FMPs) are a type of debt mutual fund that invests in fixed-income securities such as bonds, debentures, and government securities. FMPs have a fixed maturity period, which can range from a few months to a few years. They are a popular investment option for investors who are looking for a low-risk investment with a fixed return. In this article, we will discuss everything you need to know about investing in FMPs in India.

How do FMPs work?

FMPs work by investing in fixed-income securities that have a maturity period similar to the FMP. For example, if an FMP has a maturity period of 3 years, it will invest in bonds and other fixed-income securities that have a maturity period of 3 years or less. The returns on FMPs are determined by the interest rates on the underlying securities and the duration of the investment.

One of the key advantages of investing in FMPs is that they offer a fixed return, which is known at the time of investment. This makes them a popular investment option for investors who are looking for a low-risk investment with a fixed return.

Benefits of investing in FMPs

There are several benefits of investing in FMPs, including:

• Low risk: FMPs are a low-risk investment option as they invest in fixed-income securities with a fixed maturity period. This makes them less volatile than other mutual funds that invest in equities.
• Fixed return: FMPs offer a fixed return, which is known at the time of investment. This makes them a popular investment option for investors who are looking for a low-risk investment with a fixed return.
• Tax efficiency: FMPs are tax-efficient as they are treated as debt funds for tax purposes. This means that if you hold an FMP for more than 3 years, you will be eligible for long-term capital gains tax, which is currently taxed at 20% with indexation.

Things to consider before investing in FMPs

Before investing in FMPs, there are several things that you should consider, including:

• Maturity period: FMPs have a fixed maturity period, which can range from a few months to a few years. You should choose an FMP with a maturity period that matches your investment horizon.
• Interest rate: The returns on FMPs are determined by the interest rates on the underlying securities and the duration of the investment. You should choose an FMP that offers a competitive interest rate.
• Credit rating: FMPs invest in fixed-income securities, which are rated by credit rating agencies. You should choose an FMP that invests in securities with a high credit rating to minimize the risk of default.
• Expense ratio: FMPs charge an expense ratio, which is the fee charged by the fund house for managing the fund. You should choose an FMP with a low expense ratio to maximize your returns.

How to invest in FMPs

You can invest in FMPs through a mutual fund distributor or online through a mutual fund platform. Before investing, you should read the scheme information document (SID) and the key information memorandum (KIM) to understand the investment objective, investment strategy, and risk factors of the FMP.

You will also need to complete the Know Your Customer (KYC) process, which involves submitting your identity proof, address proof, and PAN card. Once your KYC is verified, you can invest in FMPs through the mutual fund platform.

Top FMPs in India

Here are some of the top FMPs in India:

• Aditya Birla Sun Life Fixed Term Plan - Series QF: This FMP has a maturity period of 1,095 days and invests in fixed-income securities with a high credit rating.
• ICICI Prudential Fixed Maturity Plan - Series 87 - 1 Year Plan A: This FMP has a maturity period of 365 days and invests in fixed-income securities with a high credit rating.
• UTI Fixed Term Income Fund - Series XXXVIII - III (1100 Days): This FMP has a maturity period of 1,100 days and invests in fixed-income securities with a high credit rating.

Conclusion

FMPs are a low-risk investment option that offers a fixed return. They are a popular investment option for investors who are looking for a low-risk investment with a fixed return. Before investing in FMPs, you should consider the maturity period, interest rate, credit rating, and expense ratio of the FMP. You can invest in FMPs through a mutual fund distributor or online through a mutual fund platform. Always read the scheme information document (SID) and the key information memorandum (KIM) before investing in FMPs.