Fixed Maturity Plans (FMPs) 

 Safe, predictable and better post-tax returns than bank FDs

Rising interest rates not only mean rising EMIs but also offer an opportunity to earn higher returns. Debt schemes are now  offering attractive returns with short-term rates in the region of 8-10%. Call money rates have been moving higher to about 7.5-8%  due to tight liquidity conditions. With the RBI deciding to raise the cash reserve ratio (CRR), liquidity conditions have worsened. Tightness in the money markets is expected to continue till the end of the current financial year and investors can consider investing in short term options like FMPs or floating rate schemes. Fixed maturity plans, or FMPs as they are popularly called, are close-ended funds with a fixed tenure and invest in a portfolio of debt products whose maturity coincides with the maturity of the product.

The primary objective of a FMP is to generate income while protecting the capital by investing in a portfolio of debt and money market securities. The tenure can be of different maturities, ranging from one month to five years. FMPs can be compared to fixed deposits of a bank. While a fixed deposit offers a 'guaranteed' return, returns in FMPs are only 'indicative'. Typically, the fund house fixes a 'target amount' for a scheme, which it ties up informally with borrowers before the scheme opens. That way it knows the interest rate it will earn on its investments, providing the 'indicative return' to investors.

Benefits of FMPs

FMPs offer many benefits like tax efficiency, fixed tenure and low sensitivity to interest rates. The minimum investment amount is usually Rs 5,000, which a retail investor can easily invest

Capital protection: FMPs have less risk of capital loss than equity funds due to their investment in debt and money market instruments

Low interest rate sensitivity: As the securities are held till maturity, FMPs are not affected by interest rate volatility. The actual returns are more or less close to the indicative returns declared at the scheme's launch.

Lower cost: FMPs involve minimum expenditure on fund management, as there is no requirement for a time-to-time review by fund managers to buy/sell the instruments constituting the fund. Since these instruments are held till maturity, there is a cost saving in respect of buying and selling of instruments

Tax benefits: FMPs score over fixed deposits because of their tax efficiencies both in the short-term as well in the long-term.

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Specimen Of  March 2007 FMP's

Issuer	STANDARD CHARTERED FIXED MATURITY PLAN
Type of Scheme	Close Ended Income Scheme - Fixed Maturity Plan.
Tenor of the scheme	12 Months and 3 days.
Issue offered	12.03.2007  to  19.03.2007
Maturity	April 03, 2008.  Quarterly redemptions possible subject to exit load.
Security	Secured, as investment in Govt. Securities, Bank Deposits & Corporate Debt.
Option	Growth & Dividend.
Yield/Return (After Tax)	9.90% - 9.98  % p.a.
Entry Load	Nil (Units for sale in IPO)
Premature Withdrawal for Penalty / Liquidity (Exit Load)	1.50% - 2.00% for exit on any day except the specified redemption date.
Portfolio Disclosure	Half Yearly Disclosure of Portfolio
Minimum Amount	Rs.500 & in multiples of Re.1 thereafter
Repatriation	Subject to necessary procedure
Return  - NRE 1 yr. Deposits	Re. 5.60%

 

Issuer	FRANKLIN TEMPLETON FIXED TENURE FUND
Type of Scheme	Close Ended Income Scheme - Fixed Maturity Plan.
Tenor of the scheme	12 Months and 5 days.
Issue offered	16.03.2007  to  22.03.2007
Maturity	April 03, 2008.  Quarterly redemptions possible subject to exit load.
Security	Secured, as investment in Govt. Securities, Bank Deposits & Corporate Debt.
Option	Growth & Dividend.
Yield/Return (After Tax)	10.10 % p.a.
Entry Load	Nil (Units for sale in IPO)
Premature Withdrawal for Penalty / Liquidity (Exit Load)	1.50% - 2.50% for exit on any day except the specified redemption date.
Minimum Amount	Rs.10,000
Repatriation	Subject to necessary procedure
Return  - NRE 1 yr. Deposits	Re. 5.60%

Salient Features

1 Initial investment is made in Indian Rupee  Fixed Maturity Plan of  leading Mutual Funds like Standard Chartered, Franklin Templeton Mutual Fund, Tata Mutual Fund and others.

02 The principal amount and fixed returns are both guaranteed.