Fixed Maturity Plan
FMPs, are the equivalent of a fixed deposit in a bank, with a little difference. The FMP's returns are only indicated and not 'guaranteed', Since the fund house knows the interest rate that it will earn on its investments, it can provide 'indicative returns' to investors.FMPs are debt schemes, where the corpus is invested in fixed-income securities.
Where do FMP's invest ?
FMPs usually invest in certificate of deposits (CDs), commercial papers (CPs), money market instruments, corporate bonds and sometimes even in bank fixed deposits. Depending on the tenure of the FMP, the fund manager invests in a combination of the above-mentioned instruments of similar maturity. Say if the FMP is for a year, then the fund manager invests in paper maturing in one year.
Tenure of FMPs'
TThe tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.
These FMP NFOs are generally open for 2 to 3 days and are marketed to corporates and well-heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest too.
FMP's are investment options for sure if you want to park your money for short term. They are more tax efficient and give better post-tax returns. Though returns are not 100% guaranteed, they are almost risk free (remember almost).