What Are The Best Fixed Maturity Plan Mutual Funds in India?

 

In this Samco Investor Education Series, we will cover a topic on Fixed Maturity Plan Mutual Funds in India, one of the preferred investment options for moderate risk investors at present.

If you’re a risk-averse investor and want to invest in liquid mutual funds then there is one type which is Fixed Maturity Plans which could be the best option for you. To put it in simple words, Fixed Maturity Plan Funds are like Fixed Deposits offered by the Mutual Fund Industry to the public.

Through this article you will get to know about:

1. What is Fixed Maturity Plans (Fixed Maturity Mutual Funds)?
2. Fixed Deposits vs Fixed Maturity Plans
3. Salient features of Fixed Maturity Plans
4. Pros & Cons of Fixed Maturity Plans
5. Latest development in the taxation of Fixed Maturity Plans
6. Who should invest in Fixed Maturity Plan?
7. List of Fixed Maturity Plans in India

1) What are Fixed Maturity Plans (Fixed Maturity Mutual Funds)?

Fixed Monthly Plans (FMPs) are closed-end debt funds having a fixed maturity period. Unlike other open-ended debt funds, FMPs are not available for subscription continuously. The fund house comes up with a New Fund Offer (NFO) which will have an opening date and a closing date. You can invest in an NFO only when it is available for subscription. After the closing date, the offer to invest ceases to exist.   

2) Fixed Deposits Vs Fixed Maturity Plans:

Before you invest in Fixed Maturity Plans, it is better that you understand the difference between Fixed Deposits & Fixed Maturity Plans. Many beginner-level investors think that both are the same as both have a lock-in period. Investors need to understand that although both the instruments have a lock-in period fundamentally and technically both instruments are not the same. Refer to the table below to understand it better.

Basis	Fixed Deposits	Fixed Maturity Plans
Definition	FDs are generally introduced by Banks & NBFCs with assured returns on investments.	FMPs are plans introduced by fund houses that invest in company debt where return on investment is not guaranteed & government securities.
Returns	Assured returns, better than saving interest rates.	Only indicative returns with no assured returns.
Tax Implications	There is a tax on the return generated, although there are certain FD Investments which are exempt under section 80C of IT Act.	In FMP - Dividend option, Dividend Distribution Tax is applicable. In FMP - Growth option, Capital Gain Tax is applicable. FMP investment doesn't enjoy tax exemption under section 80C of the IT act.
Maturity Period	There are FDs with various maturities available in the market. Popular FDs have 3-5 years of maturity period.	There are varying options for FMP. The maturity period could vary between 30 days to 5 years.
Liquidity	One can terminate the investment prematurely with some charges.	Restricted liquidity before completion of the lock-in period.

3) Salient Features of Fixed Mutual Funds:

By now you might be having clarity on what is Fixed Maturity Plans and how is it different from a Fixed Deposit Investment. Following are the important features of Fixed Mutual Funds, which will help you in making investment decisions. For brevity purpose, we will use the term “FMP” to refer to as “Fixed Maturity Plans” in this article.

Fixed Maturity

FMP comes with a maturity period, meaning there is a lock-in period associated with FMP Investments. Different funds offer different maturity periods. Some funds have a maturity period of 30 days whereas some of the funds have a maturity period of 395 days. Investors can also find funds offering a lock-in period of 5 years.

Closed Ended Funds

FMP are usually closed-ended funds thereby restraining investors from taking out investments before the maturity. Usually investors can buy closed-ended fund units during NFO which can be redeemed only upon maturity. Investors can exit the funds prematurely if they have the investments in their demat account and the fund is listed on the exchange, else they have to wait for maturity for withdrawal of investment.

Pre-defined investment strategy  

Usually FMP funds invest in commercial papers (CP), certificate of deposits (CD), corporate bonds, Money market instruments, government-issued securities, non-convertible debentures (NCD) of high rated companies and the maturity of the instrument is in line with the maturity period of the FMP.

Fixed Return Expected

The fund has minimum exposure to the risk of rate fluctuations as the funds a get fixed rate of returns on investment.

Credit Risk

As the investments are done in highly rated credit investment vehicles, the credit risk is low and the liquidity risk is also minimal at the time of maturity of the invested securities.

Offers Investment Risk Mitigation

As FMP offers stable and less volatile return from fixed income generating instruments, it is used by many investors as a portfolio risk mitigation tool.

Taxation of FMP

FMP offers tax efficiency over other fixed income instruments. If an investor invests for more than three years time then one can leverage the benefit of indexation and can avoid the impact of inflation on returns.

4) Pros & Cons of Fixed Maturity Plans:

Pros:

1. Offers comparatively less fluctuating return to investors, although there is no guarantee of return which an investor is expected to get under FMP as it could be investing in a number of instruments with a varying return. Usually, the fund houses invest in instruments having similar maturity periods as the fund has planned to have the maturity period of their offering.
2. Investors also get the benefit of indexation for taxation purposes, when investments are held for 3 years or more, FDs don’t offer such benefits.
3. Investors can diversify their investment portfolio by investing in FMPs.
4. As fund houses invest in fixed income instruments, one can expect a positive return irrespective of the investment vehicle chosen by the house. The only limitation is that there is no pre-decided return declared by the fund house.

Cons:

1. There is no return guaranteed by the fund house meaning you could get a return of 3% or you could get a return of 8.5% depending on the investments made. If the return is less than the inflation rate then effectively your capital is eroded due to inflation.
2. There is a lock-in period so once you make an investment then under normal conditions you won't we able to liquidate your investments.

5) Latest Development in Taxation of FMP:

Post 2014, the Income tax department has modified the taxation rules for FMP. One needs to stay invested for a period of three years to claim the benefit of indexation.

6) Who should invest in Fixed Maturity Plan?

Now that you have a fair idea about Fixed Maturity Plan, it’s time to understand who all should invest in it.

It is to be noted that all individuals are allowed to invest in Fixed Maturity Plans but there are certain product features that may not be suitable to all investors, therefore it is advisable that you read through the below points to assess the suitability of FMP for investors.

1. FMP is suitable for those who are risk-averse investors but want a higher return than typical fixed deposits.
2. FMP is also suitable for those who don’t have liquidity requirements for a longer duration. As the lock-in could be for 3 to 5 years therefore before investing, investors should ensure that they have enough cash to sustain.

7) List of Fixed Maturity Plans in India

List of popular fixed maturity plans in India with other relevant details.

NFOs/FMP Schemes List
Fund name	Minimum Investment (Rs.)	Launch Date	Close Date	Tenure	Maturity Date
Aditya Birla Sun Life Fixed Term Plan - Series QR -1126 Days - Regular Plan - Dividend	1000	20-09-2018	04/10/2018	-
Aditya Birla Sun Life Fixed Term Plan - Series QR -1126 Days - Regular Plan - Growth	1000	20-09-2018	04/10/2018	1126 Days	12-09-2018
Aditya Birla Sun Life Fixed Term Plan - Series QR -1126 Days - Regular Plan - Quarterly Dividend	1000	20-09-2018	04/10/2018	-
BOI AXA Midcap Tax Fund - Series 2 - Regular Plan - Dividend	1000	12-07-2018	11/10/2018	-
BOI AXA Midcap Tax Fund - Series 2 - Regular Plan - Growth	1000	12-07-2018	11/10/2018	-
ICICI Prudential Fixed Maturity Plan - Series 84 - 1286 Days Plan F - Cumulative	5000	24-09-2018	03/10/2018	1286 Days	11/04/2022
ICICI Prudential Fixed Maturity Plan - Series 84 - 1286 Days Plan F - Half Yearly Dividend	5000	24-09-2018	03/10/2018	1286 Days	11/04/2022
ICICI Prudential Fixed Maturity Plan - Series 84 - 1286 Days Plan F - Quarterly Dividend	5000	24-09-2018	03/10/2018	1286 Days	11/04/2022
ICICI Prudential Manufacture in India Fund - Dividend	5000	21-09-2018	05/10/2018	-
ICICI Prudential Manufacture in India Fund - Growth	5000	21-09-2018	05/10/2018	-
Kotak Fixed Maturity Plan Series 247 - 1308 Days - Dividend	5000	24-09-2018	26/09/2018	-
Kotak Fixed Maturity Plan Series 247 - 1308 Days - Growth	5000	24-09-2018	26/09/2018	1308 Days	26/04/2022
L&T FMP - Series XVIII - Plan A -1100 Days - Dividend	5000	25-09-2018	27/09/2018	1100 Days	01/10/2021
L&T FMP - Series XVIII - Plan A -1100 Days - Growth	5000	25-09-2018	27/09/2018	1100 Days	06/10/2021
Reliance Fixed Horizon Fund -XXXIX- Series 8 - 1308 Days - Dividend	5000	21-09-2018	26/09/2018	-
Reliance Fixed Horizon Fund -XXXIX- Series 8 - 1308 Days - Growth	5000	21-09-2018	26/09/2018	1308 Days	26/04/2022
Sundaram Money Market Fund - Regular Plan - Daily Dividend	1000	12-09-2018	26/09/2018	-
Sundaram Money Market Fund - Regular Plan - Fortnightly Dividend	1000	12-09-2018	26/09/2018	-
Sundaram Money Market Fund - Regular Plan - Growth	1000	12-09-2018	26/09/2018	-
Sundaram Money Market Fund - Regular Plan - Monthly Dividend	1000	12-09-2018	26/09/2018	-
Sundaram Money Market Fund - Regular Plan - Quarterly Dividend	1000	12-09-2018	26/09/2018	-
Sundaram Money Market Fund - Regular Plan - Weekly Dividend	1000	12-09-2018	26/09/2018	-
Tata Fixed Maturity Plan - Series 56 - Scheme B - 1105 Days - Dividend	5000	21-09-2018	27/09/2018	1105 Days	06/10/2021
Tata Fixed Maturity Plan - Series 56 - Scheme B - 1105 Days - Growth	5000	21-09-2018	27/09/2018	1105 Days	06/10/2021
UTI Fixed Term Income Fund - Series XXX - IV (1125 Days) - Annual Dividend	5000	12-09-2018	26/09/2018	1125 Days	25/10/2021
UTI Fixed Term Income Fund - Series XXX - IV (1125 Days) - Dividend	5000	12-09-2018	26/09/2018	1125 Days	25/10/2021
UTI Fixed Term Income Fund - Series XXX - IV (1125 Days) - Flexi Dividend	5000	12-09-2018	26/09/2018	1125 Days	25/10/2021
UTI Fixed Term Income Fund - Series XXX - IV (1125 Days) - Growth	5000	12-09-2018	26/09/2018	1125 Days	26/10/2021
UTI Fixed Term Income Fund - Series XXX - IV (1125 Days) - Quarterly Dividend	5000	12-09-2018	26/09/2018	1125 Days	25/10/2021

As of date 20th October 2018. For the latest top recommendation visit RankMF.com

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