What is FMP ?
- Thread starter pritamdey
- Start date
Fixed Maturity Plans. These are close ended debt oriented mutual fund schemes with a defined maturity profile. At the expiry of the scheme the money is redeemed to the unit holders. The tenure of the scheme could vary between 30 days to 3 years. For example a 1 year FMP will invest in bonds, which will mature in one year. This way the fundhouse is able to indicate the returns on your investment in FMPs. This also insulates the scheme from interest rate risk.
The features of FMPs like tax efficiency, fixed tenure and low sensitivity to interest rates make them one of the ideal options in the current economic conditions. FMPs typically invest in fixed income instruments like CBLO(Collatarised borrowing and lending obligations), repo, govt securities, money market instruments, corporate bonds etc.
FMPs v/s Bank Fixed Deposits
FMPs are like Bank fixed deposits, the most traditional investment avenue. However FMPs being mutual fund schemes, cannot assure guaranteed returns. Let us take a hypothetical example to compare post tax returns of a one year FMP with a 1 year bank fixed deposit.
Investments FMP Bank FD
Growth Dividend
Tenure 1 year 1 year 1 year
Returns 6% 6% 6%
Tax 0.67% 0.74% 2.02%
Post Tax Returns 5.33% 5.26% 3.98%
Post tax returns after considering 11.22% long term capital gains tax without indexation.
Post tax returns after considering 14.025% dividend distribution tax for individuals without indexation.
Post tax returns after considering 33.66 income tax rate.
FMPs are tax efficient depending upon option of investment:
Incase of dividend option in FMPs the dividend is paid out net of dividend distribution tax
Incase of growth option in the FMPs if the investment is for less than a year, the gains are added to the investors income. It is than taxed at the investors income tax slab.
Also in case the investment is for over a year, the investor pays either 10%(+surcharge) capital gains tax without indexation or 20%(+surcharge) with indexation.
The features of FMPs like tax efficiency, fixed tenure and low sensitivity to interest rates make them one of the ideal options in the current economic conditions. FMPs typically invest in fixed income instruments like CBLO(Collatarised borrowing and lending obligations), repo, govt securities, money market instruments, corporate bonds etc.
FMPs v/s Bank Fixed Deposits
FMPs are like Bank fixed deposits, the most traditional investment avenue. However FMPs being mutual fund schemes, cannot assure guaranteed returns. Let us take a hypothetical example to compare post tax returns of a one year FMP with a 1 year bank fixed deposit.
Investments FMP Bank FD
Growth Dividend
Tenure 1 year 1 year 1 year
Returns 6% 6% 6%
Tax 0.67% 0.74% 2.02%
Post Tax Returns 5.33% 5.26% 3.98%
Post tax returns after considering 11.22% long term capital gains tax without indexation.
Post tax returns after considering 14.025% dividend distribution tax for individuals without indexation.
Post tax returns after considering 33.66 income tax rate.
FMPs are tax efficient depending upon option of investment:
Incase of dividend option in FMPs the dividend is paid out net of dividend distribution tax
Incase of growth option in the FMPs if the investment is for less than a year, the gains are added to the investors income. It is than taxed at the investors income tax slab.
Also in case the investment is for over a year, the investor pays either 10%(+surcharge) capital gains tax without indexation or 20%(+surcharge) with indexation.
| Thread starter | Similar threads | Forum | Replies | Date |
|---|---|---|---|---|
| V | FMPs or FDs - Which one to choose? | Mutual Funds Discussion Forum | 2 | |
| R | DBS Chola mulls FMP | General Trading & Investing Chat | 0 |