What is Fixed Maturity Plan (FMP): 5 Best FMP Funds You Can Invest in 2023
A Fixed Maturity Plan (FMP) is a Mutual Fund scheme with a limited investment window and a fixed lock-in period. This means, you can invest in these funds during NFO and can only redeem it after the maturity period. If you are a slightly risk-averse investor who wants to invest for a longer duration, these debt funds are suitable for you. Here’s everything you need to know – the 5 best-performing Fixed Maturity Plans, features, benefits, taxation and more.
Read on!
What Is Fixed Maturity Plan (FMP)?
A Fixed Maturity Plan (FMP) is a close-ended debt fund with a limited investment window and a fixed lock-in period. You can invest in such plans only during NFO (New Fund Offer) is made by the AMC (Asset Management Company) via subscription requests.
Fixed maturity plans invest in certificate deposits (CD), corporate bonds, commercial papers (CP), money market instruments, non-convertible debentures (NCD) and government-issued securities. Moreover, these investments are made in high-rated and extremely reputed companies. The maturity of these fixed deposits depends upon the tenure of the scheme.
5 Best Fixed Maturity Plans of 2023
We have mentioned the list of the best 5 fixed maturity plans with a few details below.
| Name of Plans | Fixed Maturity Plan Features | Annualised 5-year return |
| IDFC Government Securities Fund IP | Net Asset Value (NAV): Rs. 29.94 as of 20th Oct 2021 AUM: Rs. 1,956.66 crores as of 30th Sept 2021 Expense Ratio: 0.62% | 8.84% as of 20th Oct 2021 |
| ICICI Prudential Constant Maturity Gilt Fund | NAV: Rs. 19.89 as of 20th 2021 AUM: Rs. 382.09 crores as of 30th Sep 2021 Expense Ratio: 0.23% | 8.73% as of 20th Oct 2021 |
| Nippon India Gilt Securities Fund | NAV: Rs. 33.67 as of 20th Oct 2021 AUM: Rs. 1,327.94 crores as of 30th Sep 2021 Expense Ratio: 0.6% | 8.85% as of 20th Oct 2021 |
| SBI Magnum Constant Maturity Fund | NAV: Rs. 52.13 as of 20th Oct 2021 AUM: Rs. 817.28 crores as of 30th Sep 2021 Expense Ratio: 0.63% | 9.15% as of 20th Oct 2021 |
| PGIM India Short Maturity Fund | NAV: Rs. 36.29 as of 20th Oct 2021 AUM: Rs. 37 crores as of 30th Sep 2021 Expense Ratio: 1.42% | 4.69% as of 20th Oct 2021 |
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Features of Best Fixed Maturity Plans
An FMP comes with the following features:
Lock-in period
Fixed maturity plans usually have a lock-in period of three years where the principal amount is locked for a specific period. You cannot redeem the returns or even make partial withdrawals during this period.
Portfolio
Returns from such plans are generated through debt tools like non-convertible debentures, corporate and government bonds etc. Fund managers create such a portfolio so that stock market volatility has a lesser impact on these funds.
Close-ended Scheme
An FMP is a close-ended scheme. You can invest in such schemes by simply subscribing to a new fund offer from an AMC.
Quality Assets
Fixed maturity plans have quality debt instruments offering the best returns. Primarily, portfolio managers select assets issued by top companies to build a corpus. Such securities are pretty safe as they offer returns at very low risk.
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Benefits of a Fixed Maturity Plan
Low Risk
These plans offer low-risk returns as they target debt securities of top firms in India.
Stable
They are also quite stable as they get relatively less impacted by stock market fluctuations.
Fixed Returns
You will know the fixed expected returns beforehand as such schemes offer negligible deviations from the ascertained amount.
How are Fixed Maturity Plans Taxed?
FMPs are taxed in a similar way to that of debt mutual funds. Like debt funds, short-term capital gains tax (STCG) is applicable at individual income tax slab rates if the fund is held for less than three years. Long term capital gains are applicable if the asset is held for more than 36 months. After adjustment for indexation, the total returns generated are subject to a 20% long-term capital gains tax. Indexation reduces your overall tax liability on capital gains as it factors in the effects of inflation. This helps you enjoy real growth in your return portfolio.
Now, who should invest in such plans? Let us find out!
Who Should Invest in FMPs?
If you are seeking a higher return than FD (Fixed Deposit) but do not have an appetite for riskier Equities, then FMPs or fixed maturity plans are ideal for you. Compared to equity funds, such schemes offer returns at a lower risk. Such plans are also an excellent way to diversify your investment portfolio.
How to Invest in Fixed Maturity Plans?
Fixed maturity plans are composed of various elements like fixed deposits, commercial papers, etc. An individual interested in investing in those fixed maturity plans can take the help of fund managers or financial advisers. These fund managers then invest in instruments that have a similar desired maturity period. For instance, if an FMP is for 10 years then the fund manager will invest in a corporate bond for 10 years.
Risks Related to Fixed Maturity Plans
Fixed maturity plans come with the following risks:
- Market Risk
This happens because of fluctuations in the fund’s NAV (Net Asset Value) due to price movements of basic securities. Further, many macro and macroeconomic factors also contribute to market risks.
- Credit Risk
This type of risk factor is related to the collapse of the fund’s NAV due to changes in the credit ratings of the basic funds. Moreover, the security issuer does not oblige to the agreement to make coupon payments and return the invested principal at the time of maturity.
- Liquidity Risk
In this case, the fund manager will not be able to sell the underlying assets without taking any important hit.
Fixed Maturity Plans vs Fixed Deposits – Key Differences
| Parameters | FMPs | FDs |
| Maturity Period | Maturity period differs from bank to bank. | Maturity period has various options and it depends on the individual. |
| Returns | Based on market indicators. | Returns will be guaranteed. |
| Tax | Short-term or long-term capital gains taxes are applied | An interest income is added to annual income and taxed as per the applicable tax slab. |
| Liquidity | Liquidity is restricted | Individuals can opt for premature redemption. However, they will have to pay a certain amount of penalty. |
Things to Remember About FMPs Before Investing
- Check the past performance of a particular security. The return trends are crucial before you choose.
- Your investment objective is critical before investing in such financial schemes.
- You should also pick an appropriate maturity period of an FMP as the funds will stay locked in for that period.
- Check the investment portfolio to make sure that the debt instruments carry minimal risk.
- Pick an FMP with a low expense ratio to save more money in the long run.
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Final Word
Fixed maturity plans offer decent returns over a specific period of time without getting impacted much by the volatile stock market. It is an important way to diversify your investment portfolio. If you are looking for a scheme with low-risk returns, then you may consider FMPs.
If you want an investment with better yields than FMPs, you can choose something like Navi Nifty 50 Index Fund. Visit the Navi Mutual Fund and start investing today!
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
FAQs on Fixed Maturity Plan
Ans: FMPs are an ideal investment if you do not have an appetite for risks. Such schemes are least affected by stock market volatility. Also, these schemes offer good returns for a specific lock-in period. Hence, you can consider them safe.
Ans: As these plans offer low liquidity, you can only go for such schemes if you wish to remain invested until their maturity expires.
Ans: The fixed maturity period is the specific period when your FMP matures.
Ans: Yes, besides a direct plan, DFC Government Securities Fund IP offers a regular growth plan as well.
Ans: ICICI Prudential Constant Maturity Gilt Fund offers a 1-year return of 5.70% as of the latest records.
Ans: The liquidity of fixed maturity plans is lower than open-ended mutual funds schemes.
Ans: The NAV (Net Asset Value) of funds reflects a fixed maturity plan’s value. The NAV changes every day due to changes in the economy. As a result, FMPs are riskier than FDs but are ideal for investors who are looking for higher returns. Moreover, the liquidity is restricted so the investor has to fix his or her money for the NFO tenure. Fixed deposits do not have fixed liquidity but the returns are lower than FMPs. FMPs are ideal for investors who are fine with the fluctuating NAVs and want higher returns. For more risk-averse investors fixed deposits are perfect.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
