What is FMP? Fixed Maturity Plan

This is a closed ended debt mutual fund, in which we can invest for a fixed time period. Under FMP, investors invest a fixed amount and it is returned on maturity after a fixed time period. This investment plan is usually for 1 to 3 years and the indicative return can be 7% or more.

FMP is one of the low-risk investment options in which you can invest only during its subscription period i.e. NFO. This is a fixed interval, closed ended scheme which you can also consider as an alternative to FD. By investing in this, you can balance your portfolio and if a 3-year scheme is chosen, you can also take the benefit of indexation in long term capital gains.

Features of FMP

Closed Ended Scheme: FMPs are closed ended schemes, that is, investments can be made in them only when an AMC opens them for subscription for the first time through NFO. Once the subscription is over, they cannot be invested in and they remain locked in till their maturity.

Lock in period: As already mentioned, there is a lock in period in FMP. It is issued for a fixed time period such as 1 year, 3 years or 5 years. During this period, no investment or redemption can be made in them and on the arrival of maturity date, the entire money of the investor is returned to his bank account along with the return.

Investment Asset: FMP falls in the category of debt schemes, that is, to generate income, the fund manager invests in debt instruments like government and corporate bonds, commercial paper, treasury bills and debentures, etc., whose maturity time is also the maturity of the scheme. Is equal to time. For this reason, the returns received from them are less than equity mutual funds but stable.

Low Risk: FMPs are a low risky investment option due to investment in the debt market and stable returns. The indicative returns that can be earned on these are disclosed at the time of NFO or subscription itself.
How does FMP work?

Investment Period: Before investing in FMP, you should know for how long you have to invest. In FMP, you have to choose the scheme for a fixed time period, like 1 year, 3 years, or 5 years. During this time, your money remains invested and no withdrawal can be taken from it. Therefore, invest only that money in FMP which you do not need in the short term.

Portfolio Structure: Once your money is invested in the FMP, it is invested by the fund manager in debt instruments such as government bonds, corporate bonds, and other fixed income securities keeping in mind their ratings and risk. These instruments operate on fixed interest rates, which is why the returns in FMP come with less risk and are stable compared to other investment options.

Lock in period: There is a lock in period in FMP, that is, you cannot withdraw your invested money during the lock in period. This keeps your money fixed and less affected by market fluctuations.

Returns: The AMC informs the investor when the maturity date of the FMP arrives. On maturity, the investor’s money is credited to his registered bank account along with the returns.

How to invest in FMP?

Like investing in any mutual fund, investing in FMP can be done. Here it has to be kept in mind that since FMP is a closed ended fund, investment can be made only when it is opened for subscription. Any scheme is opened for subscription for the first time during NFO i.e. New Fund Offer.

Almost every AMC comes up with new funds from time to time in which units of the fund are offered for purchase at its face value, which is usually Rs 10. FMP is also opened for investment by common people through this, where any investor can invest in it through online or offline medium.

To invest online in FMP, you can take the help of any online broker, registrar or AMC’s own website. Some of these are groww, etmoney, mycams etc. Your KYC must be done before investing in any mutual fund scheme. Even if your KYC is not made, you can apply for eKYC on these platforms or fill the offline KYC form and submit it.

After completion of all these processes, you can easily apply for NFO of FMP. After which after about 5 days you are allotted mutual fund units.

Who should invest in FMP?

FMP is a low risk debt mutual fund. The value of investments made in these increases or decreases according to daily changes in NAV. FMP can generally be a good option for those who can bear some risk and want better returns than FD.

If your investment horizon is not short term, that is, if you are going to need the money after 1 or 3 years, then you can still invest in FMP. But here it is also important to keep in mind that due to being locked in, you can get your money back only on maturity.

Benefits of FMP

Stable Returns: Investment in FMP is made for a fixed time period, the indicative returns of which are already known to you. Therefore, it is very beneficial for those people who want to invest in a fixed return instrument in a short period of time with low risk. Apart from this, during the downfall of equity market, these instruments can be a great means to protect your capital and generate a good return.

Low expense ratio: FMP has a lower expense ratio than other mutual fund plans. Expense amount means the charge that a mutual fund house charges from the investor in return for managing the scheme. Its reduction also increases the returns you get.

Risk Management: FMPs are managed by professional fund managers whose main objective is to generate good returns by investing in fixed income instruments. Because they invest only in the securities of good and stable private and government companies, hence the risk involved in investment is reduced to a great extent.

Better returns than FD: The returns in FMP are better than any other fixed income instrument like bank FD, RD, PPF etc.

Low Risk: The risk involved in FMP is much lower than equity mutual funds, so it can be a great option for investors looking for better returns with less risk.

Disadvantages of FMP

Liquidity and Lock-in: FMPs have a lock-in period, which requires you to keep your money invested for a fixed period of time. If you need money in emergency, you have to wait. Although FMP is traded in the secondary market i.e. stock exchange after allotment, it is not easily encashed due to lack of flexibility and liquidity.

Interest Rate Risk: FMP involves interest rate risk. The money you invest in FMP generates returns through fixed income instruments, which are influenced by market and economic conditions. If interest rates increase in the market, your returns may reduce.

Credit Risk: In FMP your money is invested in corporate bonds, government securities, or other debt instruments. If a company defaults or their financial condition worsens, your money may also be at risk.

Conclusion

Investment in FMP helps to diversify and balance your portfolio. It gives you a good stable return with low risk, which many people need. But before investing in it, it is important to keep some things in mind, like what is your investment goal, or if you are going to need money in short term, then instead of putting it in a lock-in instrument, you can invest in a liquid fund.