Why should retail / institutional investors look at Fixed maturity plans as against Fixed deposits of banks?
Fixed maturity plans (FMP) as an investment option has gained significant momentum in the recent past, both for retail and institutional investors. FMPs are funds of a fixed maturity (typically 3 months to 3 years) wherein the assets invested in are corporate bonds with a maturity similar to the maturity of the plan. The advantages of such products are many. Since the investment horizon matches with the maturity of the assets, price risk is minimal. The credit risk is also low as investments are in high-grade instruments. The returns provided by these funds are also attractive compared to other investment options like fixed deposits. For example 1 yr P1+ corporate bonds as I write this article is trading at yields of around 9.25-9.5%. Net of expenses the potential indicative portfolio yields of a 1 yr FMP would be around 9-9.25%. Post tax return assuming that the investor is in the growth option and assuming that the long term capital gains tax rate including surcharge is 11.33% the po
