This year, Fixed Maturity Plan (FMP) has become a rage in the mutual fund industry. The industry has launched 44 FMPs since January. Many big fund houses are coming out with FMPs in the month of August-September. Let us know what is Fixed Maturity Plan and why the mutual fund industry is running after them…
What is Fixed Maturity Plan?
As the name suggests, these are fixed term schemes. Such mutual fund schemes already have a fixed tenure. These schemes generally invest money in debt instruments with fixed tenure. Their tenure can be of a few months as well as of several years. Their special thing is that the risk is less in them, because they invest in debt, while at the same time good returns are also expected. In such a situation, these schemes become a favorite for those investors, who have less risk-taking ability.
What is the difference between FD and FMP?
It can be better understood that these are also a type of FD. The only difference is that here your fixed money is not deposited with banks, rather you get direct exposure to debt instruments through the fund house. What makes Fixed Maturity Plans more special is that they are not affected by fluctuations in interest rates. Banks are affected by the FD repo rate.
Their fixed maturity plans are in line
In the coming days, big fund houses like Kotak Mutual Fund, Aditya Birla Sun Life Mutual Fund, SBI Mutual Fund, Mirae Asset Mutual Fund and Nippon India Mutual Fund are about to launch their respective fixed maturity plans. Earlier, during the last 7 months, various mutual fund houses have launched 44 fixed maturity plans in the market.
Why is the industry running after FMP?
Now the question arises that why is the mutual fund industry running behind such schemes? Actually the changing conditions of the market are responsible for this. The sequence of increase in the repo rate has stopped. The Reserve Bank decided to keep the repo rate constant in the MPC meeting held in August even after rising inflation. It is estimated that now there is hardly any further increase in the repo rate.
Better alternative to bank FD?
After May last year, the Reserve Bank increased the repo rate by 2.50 percent. Due to this banks also started increasing the interest on FD. Now that the phase of increase in repo rate has passed, FDs have also started getting affected. Some banks have even started reducing FD rates. This means that in the coming days, the interest of bank FD will go down, in such a situation, investors who like less risk will look for alternatives and from there the game of fixed maturity plan starts.
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