“FMP Fixed Maturity Plan schemes need better portfolio disclosure”- Crisil

Crisil has asked for better disclosure of FMP (fixed maturity plan) portfolios by mutual funds

Given the recent crisis of confidence in FMPs (fixed maturity plans) among some investors, Crisil has suggested that domestic mutual funds should provide more transparent disclosure of FMP portfolios

Ideally, FMPs , with the high percentage of Government debt and AAA debt portfolios should be safe

The reason most of us invest in instruments such as Fixed Maturity Plans (FMPs) is that we think debt is absolutely safe!. In fact, most FMP offer documents suggest that the majority of investment of these fixed maturity plans is supposed to be only in high quality paper such as Government securities, AA and AAA debt.

However, rumors persist in the market that the FMP (fixed maturity plan)investment vehicle may have been abused by some mutual fund companies by investing in risky debt in areas such as real estate

Highly leveraged companies in sectors such as real estate are expected to struggle with the impending recession, consumer confidence crisis and credit crunch and there is certainly some risk of corporate debt default, leading to redemptions in select fixed maturity plans (FMPs)

FMPs (fixed maturity plans) are still a great place to invest, if one relies entirely on the offer documents

A senior executive of CRISIL says “85% of FMP portfolios are investment in AAA and P1+ rated securities”. Given this rather assuring outlook, Fixed Maturity Plans do look safer compared to other investment alternatives, despite the smaller sample size of the CRISIL study

CRISIL is right, more disclosures in Fixed Maturity Plan (FMP) portfolios is necessary for investor confidence

The better of the Fixed Maturity Plan fund managers have only to gain by disclosing their portfolios in a transparent manner , akin to open ended funds. Since it appears from the CRISIL study, that most of the Fixed Maturity Plan fund managers have been disciplined investors, it makes sense for FMPs have more transparency

Mutual Fund Managers need to quickly act to provide transparency in FMP portfolios , in view of the recent fall in consumer confidence in this investment vehicle