Fixed Maturity Plan
FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP’s returns are only indicated and not ‘guaranteed’, Since the fund house knows the interest rate that it will earn on its investments, it can provide ‘indicative returns’ to investors. The regulator does not allow fund companies to guarantee returns, and hence the ‘indicated returns’ in FMPs.
FMPs are debt schemes, where the corpus is invested in fixed-income securities. The tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.
Bank fixed deposit exactly prints the amount which is due to you on maturity on the FD receipt. However, FMPs do earn better returns than fixed deposits of similar tenure.
Where do FMP’s invest ?
FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above-mentioned instruments of similar maturity.