Skip to main content

FMP - Higher yield at lower risk

 

   Shiva is a conservative investor. He trusts debt instruments and is reluctant to test the equity waters. Gauging the phenomenal returns on equity investments, he is keen to explore other instruments yielding a tad higher returns than traditional debt ones. Is there a better investment opportunity for a risk-averse investor like him? Will Shiva benefit by adding a fixed maturity plan (FMP) to his portfolio?


   FMPs are close-ended mutual fund debt schemes that have a predetermined maturity date. They invest in government securities, corporate debt and money market instruments, and aim at generating steady returns over a fixed period. They protect investors against market fluctuations. You cannot get premature redemption during the investment period and need to stay invested till maturity. FMPs are exchange-listed and the units can be sold on the exchanges.


   The objective of a FMP is to provide protection of capital. The returns are marginally higher than from pure debt investments. Fund houses have come out with innovative FMPs such as equity-linked ones. This is a debt fund that intends to invest primarily in bonds issued by corporates, banks and non-banking financial institutions. You have the option of selecting schemes that suit your risk appetite.


   FMPs do not guarantee any rate of return unlike products such as bank fixed deposits. On the basis of the investment tenure, FMPs are invested in a range of debt products of similar maturity dates. Based on the underlying instruments, an indicative rate of return is computed.


   Some fund houses have launched FMPs in which 65-80 percent is debt and 20-35 percent is equity. The returns from these products are more enticing for small investors.


   FMPs are tax-efficient, but subject to capital gains tax and dividend distribution tax. The dividend is tax-free in the hands of the investor. In case of an investment in the growth option of a FMP, held for less than a year, the gains are added to your income and taxed at your applicable income tax slab rate. If the FMP is held for more than a year, long-term capital gains tax is applicable. You have the option of choosing either capital gains tax with indexation or without indexation. It is 10 percent capital gains tax without indexation or 20 percent with indexation.


A few points to ponder over while investing in a FMP:

• FMPs are exposed to certain liquidity risk as the product is designed to be held till maturity. Investors must stick to the FMP till maturity and must not contemplate withdrawing prematurely.

• There is a credit risk associated with these instruments. There is a probability that the debt issuing company may not repay the principal. Credit rating agencies rate debt instruments on the basis of the financial health of companies floating them. A rating of 'AAA' indicates a very low risk.

• The fluctuations in NAV, if any, are not a cause for concern for both the fund manager and the investor. This is because the investor stays invested in the FMP till maturity. Temporary volatility in the FMP's NAV in the intermittent period will not dent the investor's pocket.

• There is minimal churning and portfolio review carried out by the fund manager because the underlying assets are held till maturity. Hence, FMPs are tagged with low expense ratio.

• The yield of a FMP is indicative unlike a fixed deposit, and is dependant on yields of assets that make it up.

• When choosing a FMP, study its indicative portfolio. FMPs are designed for investors like Shiva who seek competitive returns at low risk. If the fund manager has built a portfolio with debt instruments rated less than 'AAA', it carries certain degree of credit risk. Conservative investors must evaluate if they can digest the quantum of risk the portfolio carries.

 

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

 

Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

4) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

5) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

6) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

7) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

 

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
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