What is FMP (Fixed Maturity Plan)
A FMP (Fixed Maturity Plan) is a close ended, fixed income fund that has a predefined maturity date. A FMP typically invests in Debt instruments like securities issued by the Government of India (GILTS), Debentures, Commercial Paper and Certificate of Deposits. FMPs typically have no equity component. As investments generally do not flow in or out during the tenure of the scheme, a FMP is able to give fair idea on the expected returns. One must keep in the mind that the returns in FMPs are not guaranteed.
One can invest in FMP at the time of its initial launch only and redeem them only on maturity at a pre-stated period. However post listing most of the FMPs are traded on the stock exchange and thus provide some liquidity to the investor.
FMPs are tax efficient, both in short term as well as long term. There is a long term capital gains tax at either a rate of 10% without indexation or 20% with indexation (whichever is lower). And one can enjoy the benefit of double indexation if investment is held over two financial years. FMPs used to be in the investment domain of only large companies and HNI’s, but have now moved into general public domain.
The difference between FMP and FD are many, including, Tax treatment, in which FMP score better that FD. But FD offers fixed rate of return while FMP offers only expected rate of return. FMPs are also marginally riskier than FDs.