|
 |
|
 |
|
|
|
| Home > Learning Centre >
What are Fixed Maturity Plan? |
|
Understanding Fixed Maturity Plans (FMPs)
I. What are Fixed Maturity plans?
A Fixed Maturity Plan (FMP) is a fixed income scheme and generally is 100% equity free. FMPs have a fixed life and a definite maturity date i.e. they are closed ended schemes and hence the name Fixed Maturity. Post the maturity date the fund ceases to exist and your investment along with the appreciation is automatically returned back to you.
II. FMPs do not guarantee returns but their returns are fairly predictable
Though Fixed Maturity plans do not guarantee returns they are relatively more predictable in their returns. Here’s how.
As investments generally do not flow in or out during the tenure of the scheme it allows the Fund manager of the FMP to lock into a pre-decided fixed instrument (could be debentures, Commercial Paper, Certificate of Deposit, Gilts i.e. securities issued by the Government of India.) and hold on to it till the expiry of the instrument. Quite naturally the maturity profile of this fixed income instrument would be similar to the maturity profile of the scheme thus lending FMPs their relative predictability. Thus unlike an open ended fixed income fund, the fund manager here generally does not trade.
III. What are FMP maturity periods?
FMPs come in various maturities. Typical maturity periods are 90 day, 180 days, yearly (though the maturity tends to be slightly more than a year to avail of double indexation benefits), 3 years etc. A 90 day FMP simply means a FMP with a maturity of 90 days.
IV. Can I withdraw before maturity?
FMPs that have a maturity of more than 90 days, have to provide investors specific exit dates where investors can withdraw. But this comes at a price. These exit dates are pre-decided and known beforehand.
You can withdraw only after paying an exit load i.e. a penalty for early withdrawal as the fund manager may have to break the scheme’s investment in an otherwise locked-in instrument thus entailing transaction costs and in an extreme scenario even a decline in returns of the portfolio as new instruments may or may not yield the earlier yields.
V. What to look out for?
Though FMPs have a definite maturity, the credit quality of the portfolio is crucial. Credit quality simply means if the issuer of the fixed instrument that the fund manager chooses to invest in is reputable or not. AAA is the rating that is issued to a reputed borrower. Logically a better quality portfolio should yield you less than a portfolio which compromises on portfolio for returns.
VI. FMPs are less taxing
Dividends declared in FMPs are completely tax-free in your hands though the fund deducts a Dividend distribution tax of 14.1625% at source.
VII. Risk Factors
Mutual Funds and securities investments are subject to market risks, reinvestment risk, changes in political, economic environment and government policy and there is no assurance or guarantee that the objectives of the Scheme(s) will be achieved. The NAV of the Scheme(s) can go up or down depending on factors and forces affecting the Securities Market including fluctuation in interest rates, trading volumes and reinvestment risk. Past performance of the Sponsor/AMC/Mutual Fund is not necessarily indicative of the future performance of the Scheme(s) and may not necessarily provide a basis for comparison with other investments. The name(s) of the scheme(s) (including Fixed Maturity Plans) not in any manner indicate either the quality of the scheme(s), their future prospects or returns. The Sponsor or any of its associates is not responsible or liable for any loss resulting from the operation of the Scheme(s) beyond the corpus of the Trust of Rs. 30,000/-. Please read Offer Document(s) before investing.
VIII. Statutory Details
IDFC Mutual Fund has been set up as a trust by Infrastructure Development Finance Company Limited (IDFC) (liability restricted to corpus of Trust of Rs. 30,000) with IDFC AMC Trustee Company Private Ltd (Company with limited liability) as the trustee and IDFC Asset Management Company Private Ltd (Company with limited liability) as the investment manager. Investors in the scheme(s) are not being offered any guaranteed or assured rate of return.
Copy of Offer Document (s) and Key Information Memorandum along with application form for all the schemes may be obtained from the office of IDFC Mutual Fund, 90, M G Road, Mumbai400 001. Contact 1-800-226622 for details.
This brochure does not promise / indicate any returns of the Mutual Fund schemes and is created to generate awareness amongst the investors, on the benefits of investing in Mutual Fund schemes. Considering the individual nature of the applicability of taxation, investors are requested to consult their advisors / tax consultants before investing in Mutual Fund schemes.
For details please read the respective Offer Document carefully before investing. |
| |
| |
| |
|
|
labs