Fixed Maturity Plan - FMP
Better than bank FD
FMPs are closed-ended mutual fund schemes, with a pre-specified tenure. FMPs are usually offered for tenures varying from 30 days to five years. The primary objective of a FMP is to generate income and protect fluctuation in the capital due to interest rate variations. FMP is equivalent to a Bank FD in a mutual fund but more Tax efficient (For comparison, @ 9% return p.a. the post-tax returns on FMPs, it will be 8.93% versus 6.25% on Bank FDs). FMPs have exposure to high quality bonds (generally AAA/AA rated).As FMP being a debt fund, the portfolio is more tilted towards fixed income securities like certificate of deposits (CDs), commercial papers (CPs), Corporate Debt, floating rate instruments, pass through certificates (PTC), money market securities, government securities etc. The exposure across different debt instruments makes it more attractive and reduces the portfolio risk. When you sell or exit your FMP in the third financial year, you qualify for double-indexation benefit, which helps you bring down your tax liability on long-term capital gains that will arise on redemption of mutual funds.