Fixed Maturity Plans (FMP) revival in India 2009? A Phoenix rises from the ashes

July 3, 2009 by  

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Fixed Maturity Plans ( FMP ) in India have seen a huge revival in 2009

Fixed Maturity Plans almost led to the dismantling of the entire Indian mutual fund system, as FMP MF managers invested in risky assets such as real estate company (read : Fraud) fixed deposits. The RBI stepped in to clean up the mess with key regulations and Fixed Maturity Plans were supposed be history


Fixed Maturity Plans,however, have risen like a Phoenix from the ashes as the first five months of 2009 have seen investments in new Mutual Fund FMP IPOs of almost 6000 crore!

FMP (Fixed Maturity Plan) mutual Funds have benefited from Government regulations

FMP Fixed Maturity Plan MFs have matured as an investment vehicle in 2009. The Government imposed strict regulations on investments by FMP Mutual Funds have seen greater transparency in Fixed Maturity Plan investments that mature high networth investors (HNI) has appreciated


The quality of investments by Fixed Maturity Plan (FMP) mutual funds has also improved, as the new FMP IPOs of 2009 have desisted from investments in risky assets such as real estate company fixed deposits and NBFC investments

Just the fact that new FMP Fixed Maturity Plans have not invested in the volatile real estate company fixed deposits is enough to give potential FMP investors some confidence in FMPs as an asset class. The recessionary environment had earlier given credence to the belief that FMP Fixed Maturity Plan portfolios were in deep trouble due to the imminent collapse of real estate companies

Liquidity concerns in Fixed Maturity Plans (FMPs) has not impacted popularity of FMPs

RBI had ensured that Fixed Maturity Plans in India could not be sold before maturity and that FMPs could be freely tradeable in the market. However, given the low trades for bonds in the Indian market, FMPs or Fixed Maturity Plans are hardly traded,giving FMPs very low liquidity

However, this low liquidity of FMPs or Fixed Maturity Plans hardly seem to have affected their popularity as every new FMP is being lapped up by the market immediately. HNIs or High Networth Individuals still continue to believe in FMPs ( Fixed Maturity Plans ) as a great investment option for its obvious tax benefits

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