FMP action|SEBI to restrict FMP investments in realty,NBFC

FMPs (Fixed Maturity Plans) to be regulated, SEBI decides to control FMP investments in realty, NBFCs

Based on the recent FMP redemptions in the market, SEBI has conducted a research on FMP (fixed Maturity Plan) portfolio and concluded that there is significant exposure of FMPs to “volatile” sectors such as realty and NBFCs. Rumors of such low quality FMP paper and the credit crunch have recently led to large scale FMP redemptions by corporates

SEBI’s proposed dictat on FMP (fixed maturity plan) portfolios may hopefully calm the fears of corporates and HNIs who have invested large amounts of money in FMPs

SEBI actions on FMP portfolios will hopefully save the FMP asset class from being a pariah in the market

Fixed Maturity Plans (FMP) have been recently more popular even compared to bank FDs, and had been winning the FMP vs Bank FD competition for debt,but it looks like FMPs are now in deep trouble as an asset class

FMPs constitute almost 25% of assets of the Mutual fund industry and these SEBI actions are in the right spirit to safeguard the mutual fund industry. The recent redemptions in FMPs (fixed maturity plans) are quite scary and it is possible that FMPs as an asset class will disappear unless the SEBI takes stringent action against FMPs.

FMP portfolio disclosure is another area of concern and hopefully the SEBI will act on that aspect of FMPs as well

Fixed maturity plans (FMPs) do not disclose their asset portfolios to their investors,unlike asset classes such as equity or diversified funds. This aspect of FMPs has led to fund managers , typically in small funds, going beserk on FMP investments, including issuing debt to the “volatile” real estate sector

FMP investments in “real estate” constitute the biggest risk

FMP investments in real estate obviously are the biggest risk- as the real estate sector is poised to be disastrously affected by the recent downturn. Real estate companies also are heavily leveraged since they assumed that the bull market and the price escalation of real estate would last for ever

SEBI may also end the FMP “early exit” option

Despite the early exit penalty in FMPs , FMPs (fixed maturity plans) have seen large scale redemptions in recent months. SEBI may come up with a recommendation to reduce the temptation for large scale redemptions of FMPs soon.

In summary, FMP (fixed maturity plan) regulation by SEBI is a step in the right direction