Skip to main content

FMPs are good Investmetns over FDs in terms of tax efficiency

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

As these funds invest in highly-graded instruments, there is some amount of certainty about returns

FIXED maturity plans (FMPs), the close-ended debt mutual fund schemes, are often regarded as an alternative to bank and company fixed deposits (FDs).

For long, due to the lack of clarity on returns that these FMPs would generate, they failed to gain enough popularity among retail investors.

However, with passage of time, these FMPs have managed to establish a place in the portfolios of a section of smart debt fund investors.

There are investors, who, at times, do away with FDs and replace them with FMPs.

In some ways, FMPs and bank FDs are similar in nature, particularly in the sense that both give you assured returns. This is, however, notwithstanding the fact that the return from bank FD is fixed and also insured up to Rs 1 lakh, and one knows exactly what one will get and when, whereas, in case of FMPs, the returns are only indicative.

Many FMPs do invest in highly graded instruments and therefore, one can say there is some certainty over returns. Some financial planners and investors brand FMPs as the mutual fund industry version of FDs.

While banks and companies can tell investors what they will pay, mutual funds cannot declare the yield on close-ended debt schemes.

They were earlier also barred from disclosing the indicative portfolio of these schemes. Therefore, there has always been and will always be a debate in the minds of an investor whether to go for FDs or FMPs.

There is no doubt that the Reserve Bank of India (RBI)'s credit policy pronouncements on Friday will render the FD-versus-debt fund debate fiercer. Investors will still face compelling reasons why they should invest in FDs, now that their rates are showing a tendency to firm up. At the same time, investors will have convincing arguments in favour of managed products -short-term debt funds and FMPs which are just showing signs of superior yields.

While the choice becomes a tad more difficult, the lure of assured returns will be stronger indeed -in a market where equity and several other asset classes are failing to satisfy the appetite of investors, chiefly on account of high volatility and negative growth

Analysts think the apex bank, which has signalled a firm policy stand on taming inflation, will have a tough task insofar as the debt market dynamics are concerned. The fixed-income scenario is not likely to change suddenly to accommodate sharper yields.

However, a modification of sorts may be expected.

Investors will keep a particular vigil on trends that may emerge in terms of the shorter end of the curve.

There are already apprehensions that as for FDs, the fight between issuers to get a higher share of investors' allocations will turn uglier. Already banks are aggressively offering deposits (with friendly tenure), and investors have started expecting rates that are closer to 10 per cent.

If someone recommends opting for FMPs, one must ask oneself what is so appealing about FMPs and one should make a conscious decision after clearly knowing the differences between FD and FMP .

There are differences between the two on the taxation front as well. If one invests in an FMP, the dividend is tax-free in the hands of the individual investor, but the fund has to pay a dividend distribution tax. If one invests in the growth option of the FMP for less than a year, the gains are added to the investor's income and taxed at the investor's slab rate. In FDs, the interest income is added to the investor's income and is taxable at the applicable tax slab, also known as the marginal rate of tax.

With FMPs, the tax implication depends on the investment option -dividend or growth. While in the dividend option investors have to bear the dividend distribution tax, in the growth option, returns earned are treated as capital gains (short-term or long-term depending on the investment tenure).

In the case of short-term capital gains (if investments are held for less than 365 days), the gains quantum is added to the investor's income and is taxed at the marginal rate of tax. As for long-term capital gains (if investments are held for more than 365 days), the tax liability is determined based on the lower of with indexation (charged at 20 per cent plus surcharge) and without indexation (charged at 10 per cent plus surcharge).

With the indexation benefit, FMPs end up delivering more tax efficient returns than FDs.

There are many, who think that FDs have an edge over FMPs in liquidity. Being fixed income in nature, there are restrictions on liquidity in both cases. But FDs can generally be withdrawn without penalty or with low penalties, unlike FMPs.

The ultimate analysis, managed products are likely to have an edge, because of the possibility of their scoring more in terms of pure returns. On last count, FMPs are known to have offered 10-11 per cent or thereabouts. The trend, if persists, will ensure more conversions from fixed deposits to debt funds. As always, investors need to consult their financial planners before taking active calls in this direction.

In FDs, the interest income is taxable at the applicable tax slab, also known as the marginal rate of tax In case of FMPs, the tax implication depends on the investment option -dividend or growth While investing in the dividend option, investors have to bear the dividend distribution tax

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

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.
Read more

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits
Read more

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli
Read more

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis
Read more

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
Read more
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