Prajna Capital - An Investment Guide

What is an FMP? FMP stands for Fixed Maturity Plan . These are essentially close-ended income schemes with a fixed maturity date i.e. that run for a fixed period of time. This period could range from one month to as long as two years or more. When the fixed period comes to an end, the scheme matures, and your money is paid back to you. FMPs do not invest in equity. The portfolio is generally invested in debt and money market instruments maturing in line with the tenure of the scheme. The objective is to lock-in the investment at a specified rate of return thereby immunizing the scheme against market fluctuations. Liquidity In most open-ended mutual fund schemes, one can redeem one’s units anytime. However, the structure of the FMP does not lend itself to this kind of liquidity. Invest money you are more or less sure you are not going to need during the tenure of the plan. If you withdraw before the scheme closes, generally a steep exit load is imposed. The reason for this steep load is...

An Equity-linked Fixed Maturity Plan is a debt fund which intends to invest primarily in the bonds issued by the corporate, banks, non-banking financial institutions, etc. These bonds are generally zero coupon bonds whose returns are set with the returns of underlying assets (e.g. group of stock or index) they choose. There is no fixed coupon rate, instead a participation ratio is fixed and on that ratio, the return is generated. The participation ratio is the fixed proportion of upside in the underlying asset that the investor is entitled to get. But here’s a catch, there is a cap on the upside known as knockout level. That is, if the value of the underlying asset reaches or exceeds a pre-determined level the investor will just get a fixed rate of return. Birla Sun Life Mutual Fund is introducing two Equity linked FMP schemes, Series-A (Aviator Plan) with maturity of 36 months and Series-B (Gladiator Plan) with maturity of 21 months. The participation ratio of Aviator & Gladiator ...