FMPs (Fixed Maturity Plans) are a good option, if you are an Indian, you are wondering where to invest in India today
Why consider FMPs or Fixed Maturity Plans :
- The equity or share market has crashed
- The debt market has crashed
- Fixed deposits (FDs) have poor post tax returns
- You fear the risk of default with corporate FDs
- The solution : Invest in FMPs or Fixed Maturity Plans!
5 Reasons to invest in FMPs (Fixed Maturity Plans)
The equity market is a poor alternative to FMP investments today
The crash in the equity (share) market has all of us scared. Is there more pain in the market? Will it ever recover? Will interest rates ever decrease? The NIFTY is now heading towards 5000, FIIs are exiting. On top of these factors, there are rumours of a pending strike on Syria. The high cost of capital in India suggests that the economy will not revive soon and the equity share market will be in doldrums for some time. So, equities are out as an investment option. Even if they are up temporarily, the QE abandonement by the US Fed hangs like a damocles sword on the market. Fixed Maturity Plans are the option to consider.
FMP vs debt mutual funds : A no-brainer
Earlier in the year, as predictions of lower interest rates hit the market, everyone wanted to get into the debt market. However, after rumours started coming in of quantitative easing being eased out by the US Government, there has been a drastic pullout of FIIs from the debt market. This has led to debt funds or gilt funds not being an option anymore for Indian investors
FMPs Mutual Funds investments are less affected by FII impacts due to reducing QE- quantitative easing
Now, we come to FMPs or Fixed Maturity Plans. These are special debt NFOs (new fund offers) offered by mutual funds. However, whats unique about FMPs is that FMP Mutual Fund investments are for a specific duration. This ensures that the mutual fund managers can lock in to the high interest rates available now and the indicative yields are usually accurate. For example, if you buy a FMP fixed maturity plan mutual fund for 6 months, the mutual fund manager will typically invest in fixed income instruments of that known maturity. This essentially reduces interest rate risk significantly. As FMPs do not work like debt mutual funds, they are not affected by sudden withdrawls in the funds
FMPs, being illiquid, are actually an advantage during this time
FMPs (Fixed Maturity Plans) are supposedly liquid debt instruments per RBI and are traded in the debt market. But in reality, not much trading takes place in FMPs. This is actually an advantage in today’s debt market since fixed maturity plans are not subject to the fickle investment decisions of global FIIs. Debt mutual funds barring fixed maturity plans have totally collapsed, but FMP investments are still doing well
Fixed Maturity Plans (FMPs) have tax advantages over FDs and other investments through indexation
The tax advantages of FMPs over FDs is well documented. The indexation benefits of FMPs are great especially if the fixed maturity plans span across multiple years. This is a great advantage for Indian investors in the 20% or 30% tax brackets and helps them save a lot of tax
In summary, fixed maturity plans are the way to go these days, however, always watch the fine print!
While Fixed Maturity Plans may be preferred investment vehicles with mutual funds launching a new one every day, you have to make sure that you read the prospectus and invest in FMPs that invest in AAA or AA rated securities only and also look at the past performances of the individual mutual fund managers
Why FMP returns in 2012 and 2013 have made FMPs the preferred debt fund investment in 2013
|FMP returns in 2012 have been really good- in many cases, the returns from FMP investments have beaten debt fund benchmarks. No wonder that FMPs form the highest category of mutual fund NFOs in 2012 and 2013|
I myself invested in a 370 day FMP last year and this FMP has given returns of over 12% in 2012. These returns are obviously better than most investment in debt mutual funds in 2012
Investors in FMPs NFOs in 2012 need to thank SEBI for the excellent returns that most FMP mutual fund NFOs have returned
SEBI came up with far reaching reforms in FMP NFOs launched by Indian mutual funds and this has led to more transparency and reduced risks in FMP investment returns.
The delay/abandonement of the Direct Tax Code has resulted in continued tax benefits for FMP investments and higher post-tax returns.
The tax benefits of FMP returns due to the FMP tax treatment advantages and related single and double indexation benefits have resulted in superior FMP post-tax returns in 2012 and 2013
We are all aware of the supaerior returns of FMPs vs FDs, purely due to the indexation benefits of FMP investments.
Have you ever wondered why returns from FMP investments do better than comparable debt fund investments?
It is really not all surprising that FMP returns do better than FDs, but FMPs often do better than debt fund / fixed income investments such as income debt funds, floating rate funds and other debt funds. This is because FMPs enable the mutual fund to lock into higher interest rates since there is less chance of withdrawl despite being listed. In a falling interest rate scenario, this enables mutual fund managers to lock into higher interest rates. In addition, investors in FMPs get the benefits of better post tax returns due to indexation benefits.
Perfect time to invest in FMP Fixed Maturity Plan NFOs from mutual funds
Investing in any mutual fund NFO is fraught with risk these days- is there a ray of hope in investing in fixed maturity plans? Yes! FMP New Fund Offers from Indian mutual funds are a good option for investments these days
Why can one consider FMP (fixed maturity plan) investments at this time? Why now?
Consider the current stock market and interest rate scenario
- Stock markets at an intermediate high, with the sensex at around 18000 and stock markets likely to fall.
- Interest rates are a high and the rates are set to fall soon. So, its a perfect time to lock into these high rates
- FMPs are better than bank fixed deposits in terms of tax treatment for HNIs and retail investors
- Fixed Maturity Plans from mutual funds offer the opportunity to buy a basket of fixed maturity debt securities,rather than a single corporate fixed deposit
- Longer term FMP investments offer great tax benefits with prospects for single and double indexation tax benefits
- With falling food inflation, it is likely that interest rates will fall soon. The RBI and the Indian Government are also giving similar messages leading to a possible fall in interest rates. Its the right time to lock into these higher rates
- SEBI has tightened the governance of fixed maturity plans by Indian mutual funds by mandating that FMPs be traded in the stock market. Also, the fact sheet published by Indian mutual funds have ensured that if you can study the past performance as well as the expense ratios of FMP NFOs. This has led to more transparency in FMP investments.
In short, this is the right time to invest in FMP mutual funds- Invest soon before the opportunity window for fixed maturity plans disappear
Another FMP from Birla Sunlife Mutual Fund- Fixed Term Plan Series CK
Birla Sunlife Mutual Fund seems quite committed to launching new Fixed Maturity Plans of varied maturities. Fixed Term Plan Series CK is yet another FMP NFO in that category
Open and closing dates for Birla Sunlife Mutual Fund Fixed Term Plan Series CK
- Birla Sunlife Mutual Fund Fixed Term Plan Series CK
- Open date of Fixed Term Plan Series CK NFO issue : 30 December 2010
- Close date of Fixed Term Plan Series CK NFO issue : 6 January 2011
Birla Sunlife Mutual Fund Fixed Term Plan Series CK – maturity period of this FMP
The maturity period of Fixed Term Plan Series CK is 368 days. This means that the FMP will qualify for single indexation tax benefits
The final review- Birla Sunlife Fixed Term Plan Series CK
While Fixed Term Plan Series CK qualifies for single year indexation benefits for taxes, some may like to wait for other FMPs to be launched particularly at the end of the calendar year, that may allow for double indexation tax benefits
ICICI Prudential Fixed Maturity Plan Series 53 – 18 Months Plan A-Review
ICICI Prudential Mutual Fund has launched a new FMP – Series 53 18 Months Plan A. Due to the ongoing liquidity issues, this is another FMP among the spate of FMP issues that we are seeing in the market recently
Franklin Templeton Fixed Tenure Fund – Series XIII – Plan A- a new FMP from Franklin Templeton MF
Franklin Templeton Mutual fund has launched a new fixed maturity plan (FMP)
Franklin Templeton Fixed Tenure Fund Series X111 Plan A FMP-Open and close dates
The open and close dates for this FMP from Franklin Templeton Mutual Fund are 7 December 2009 and 20 January 2010
Maturity of FT Fixed Tenure Fund Series 13 Plan A
The maturity of this Fixed Maturity plan from Franklin Templeton Mutual Fund is 3 years
Entry and exit loads of Franklin Templeton Fixed Tenure Fund Series X111 Plan A
There is no entry load for this FT FMP, the exit load is obviously not applicable since there per new SEBI regulations, the FMP cannot be redeemed before maturity
The FMP is of course tradeable, but dont expect too much liquidity in the market
Recommendation for FT FMP Series 13 Plan A
Not a bad idea to invest in this Franklin Templeton FMP if you have money to spare right now, and avail indexation benefits for 3 years- but if you can wait for some time, you may get FMPs with better yields once the expected interest rate hike happens
New FMP NFO from HDFC Mutual Fund- 18M Oct 09
Another fixed maturity plan from HDFC Mutual Fund. HDFC FMP October 2009 is targeted at retail investors interested in fixed income investment over a eighteen month horizon
HDFC 18M FMP Oct 09 – Options available in this fixed maturity plan
This FMP from HDFC Mutual Fund is meant for retail investors. The options available are
- Dividend- Quarterly- HDFC MF will declare a quaterly dividend for this FMP option
- Dividend – Annual-HDFC MF will declare an annual dividend for this FMP option
- Growth Option- No intermediate dividends,the dividends will be reinvested for this FMP option
HDFC 18M FMP – Maturity period
The maturity period will be 18 months- investments will be made in fixed income securities in line with this maturity period
Where will HDFC 18M FMP invest in?
HDFC 18M FMP will invest in
- Debt and Money Market Instruments (60-100% of HDFC FMP Oct 09 assets will be invested in these instruments
- Govt securities and bonds (0-40% of HDFC MF FMP Oct 09 assets will be invested in Government bonds
Contact Us for HDFC MF 18M Oct 09 FMP forms at fixedmaturityplans.com
Another fixed Maturity Plan from Fortis Investments – Fortis FTP – Series 16 – Plan A – Regular Plan
Fortis Investments has launched another Fixed Maturity Plan ( FMP ) , the Fortis FTP – Series 16 – Plan A - Regular Plan. This fixed maturity plan invests in fixed income securities maturing before the maturity date of the plan
Fortis FTP Series 16 – Plan A- Open and close dates
The Fortis FTP Series 16 – Plan A fixed maturity plan ( FMP ) has a open date of September 18 and a close date of October 15
Fortis FTP Series 16- Plan A- Maturity period
This fixed maturity plan (FMP) from Fortis Investments has a maturity period of 24 months
Variants of Fortis FTP Series 16-Plan A
Fortis FTP Series 16- Plan A fixed maturity plan from Fortis Investments comes in the following flavors
- Growth Option- No dividend will be declared under this option
- Dividend Option – This fixed maturity plan has the following flavors under the dividend category -Calendar Quarterly, Calendar Yearly and Dividend on Maturity
Forms for Fortis Investments Fixed Maturity Plan (FMP) FTP Series 16
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