Skip to main content

FMPs are Best Investment option now As Interest Rates Rise

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

Mutual Fund FMP

They offer tax advantage and higher returns than bank fixed deposits but little liquidity


The recent volatility in the debt market has seen a rush for launching fixed maturity plans (
FMPs) by fund houses. On the one hand, given the recent spike in rates of interest in the economy, these schemes have become attractive to investors, and hence the rush. On the other hand, the turmoil in the bond market, with several of the regular bond schemes even showing negative returns, some of the jittery investors have been taking money off the table. To keep these investors within the same fund house, mutual funds have been launching FMPs in large numbers.


But why are FMPs the flavor of the season? An FMP is a closed-ended debt fund where the time to maturity of the debt instruments in its portfolio matches exactly with the maturity of the whole scheme. For example, if a fund launches an FMP for 367 days, meaning an investor investing in this fund will get his money back after 367 days, then all the debt instruments like certificates of deposit (CDs) and commercial papers (
CPs) it has in its portfolio, will also mature after 367 days.


So there is no mismatch between the portfolio of an FMP and the time of maturity of the fund. Now since the CDs and CPs come with pre-defined rates of interest, so this aspect also gives the investor a very good idea about the kind of return he/she can expect by investing in the FMP. This
return is not guaranteed but fund houses only 'indicate' the magnitude of return they can offer in each FMP they launch. I market parlance, this is called indicative yield. Of late, some of the FMPs from better fund houses are offering indicative yields of 9.80% or even closer to 10%.


So what kind of investors should look at investing in FMPs? Those investors who want to have part of their investments in debt instruments, and have some money that they would not require at least for the next one year. However, any emergency corpus should be kept in a bank fixed deposit. This is because FMPs, although are compulsorily listed on the bourses, offer nearly no liquidity. If you don't need liquidity, FMPs are the best option in terms of returns. As an investor, you invest in FMPs for near-risk free return. So it's always better to stick to FMPs from good fund houses which do not take risks in these schemes. FMPs are also compared with bank and corporate fixed deposits. Here FMPs enjoy some advantages over FDs, and one of the top advantages is its tax efficiency. For example, a high net worth individual (HNI) invests Rs 1 crore in a 367-day FMP from a good fund house with an indicative yield of about 9.80%. In comparison, the FD from a good bank would probably give him about 9%. Now on the FD, the HNI would get a return of Rs 9 lakh while on the FMP he would get Rs 9.80 lakh. But on the FD he would be paying income tax at the highest rate of about 33%, so his net retur n would be about Rs 6 lakh. On the other hand, on the returns from FMP he would be paying tax at 10%, since this qualifies as a long term capital gain. So from the FMP, net income would be Rs 8.8 lakh. Thus at the comparative level the HNI will have about Rs 2.8 lakh more.


The post-tax returns from FMPs and corporate FDs (some of which are offering 12%), could be comparable, but at the current market and economic situation, investing in such FDs would mean taking huge risks.


Another advantage for FMPs is that they have lower expense ratios when compared with openended debt funds. This is because in FMP the fund manager invests once while in regular debt mutual fund schemes the fund manager often has to churn the portfolio, fund industry officials said. And this lower fund management costs are added to the returns that an investor can get in an FMP, they said.


FMPs also offer nearly nil interest rate risks at the time of redemptions. For example, if you invest in a short-term income fund which is usually open ended and want to redeem after a year. Here, in case the interest rate scenario is adverse, you may end up getting a lower rate of return at the time of redemption. On the other hand, if you are invested in an FMP, you can reasonably calculate the kind of return you would get at the time of redemption

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now