In the last few months, both fixed maturity plans (FMPs) and fixed deposits (FDs) have been competing for investors’ attention. Mutual funds have come out with advertisements where they talk about the advantages of investing in FMPs, which include lower taxation and higher returns. Similarly, banks have been flashing hoardings declaring 10.5 per cent or 11 per cent returns. Here we take a look at both these products and how they work.
FMPs, launched by mutual funds, invest in certificates of deposit (CDs) of banks, commercial papers and bonds of companies and other similar instruments. They offer “indicative returns” to the investors. FDs are issued by banks and some non- banking finance companies (NBFCs) and offer “assured returns”. FMPs usually offer returns that are slightly higher, around 1percentage points, than FDs because of their exposure to other instruments. At present, FDs are offering around 10-11 per cent, while FMPs are offering 11-11.5 per cent.
However, the reputation of FMPs have taken a serious hit in recent times because of reports about the exposure of mutual funds to papers of real estate firms and NBFCs. Some funds were even forced to roll over because companies defaulted on their payments.
