What are FMPs?
FMP stands for Fixed Maturity Plans. FMPs are a type of mutual fund scheme offered in India. They are close-ended debt funds that invest in fixed-income securities such as government bonds, corporate bonds, and other debt instruments. The distinguishing feature of FMPs is that they have a fixed maturity period, typically ranging from one month to five years.
Investors who invest in FMPs are issued units at the time of entry, and the units are redeemed at the end of the maturity period. During the tenure of the FMP, investors typically receive regular income in the form of interest payments and may also benefit from capital appreciation if the underlying securities perform well.
FMPs are known for their relatively low-risk profile as they primarily invest in fixed-income securities with defined maturity dates. They aim to provide stable returns by matching the investment duration of the scheme with the duration of the underlying securities. Additionally, FMPs may offer tax advantages in certain cases, especially for longer-term investments.
Here are some key characteristics of FMPs in India:
Fixed Maturity Period: FMPs have a predetermined maturity date, which can range from a few months to a few years. Investors can only invest in FMPs during the initial offer period.
Close-Ended Structure: FMPs have a fixed number of units issued during the offer period, and the fund remains closed for new subscriptions once the offer period ends. Unlike open-ended funds, investors cannot buy or sell units directly from the fund after the offer period. However, FMP units may be traded on the stock exchange if they are listed.
Fixed Portfolio: FMPs typically maintain a fixed portfolio of securities throughout the investment period, aiming to match the duration of the scheme with the underlying securities. This approach helps in managing interest rate risk.
Income Distribution: FMPs generally aim to generate income for investors through interest payments and coupon accruals from the underlying securities. The income distribution may be periodic or at maturity, depending on the structure of the FMP.
Taxation Benefits: FMPs may offer certain tax advantages, especially for longer-term investments. If held for more than three years, FMPs qualify for long-term capital gains tax, which is taxed at a lower rate compared to short-term capital gains.
Risk and Returns: FMPs are considered relatively low-risk investments as they primarily invest in fixed-income instruments. However, they are not completely risk-free and are subject to credit risk, interest rate risk, and liquidity risk associated with the underlying securities. The returns from FMPs depend on the performance of the underlying securities.
It's important to note that regulations and specific features of FMPs can vary, so investors should carefully read the offer documents, consult with financial advisors, and consider their risk profile and investment objectives before investing in FMPs or any other mutual funds.
