Fixed Maturity Plans Explained: What You Need to Know

What are FMPs (Fixed Maturity Plans)?

Fixed Maturity Plans (FMPs) represent a specific category within debt mutual funds, focusing on fixed-income securities with predetermined maturity dates. As close-ended funds, FMPs are accessible only during their New Fund Offer (NFO) launch, and redemption is restricted until the maturity date. Designed to offer stable returns, FMPs capitalize on prevailing interest rates at the time of investment, making them a tempting option for investors aiming for stability and an alternative to fixed deposits. Notably, FMPs provide a shield against interest rate risk. Additionally, FMPs boast tax efficiency, offering indexation benefits for long-term capital gains tax.

How is FMP different from other debt funds?

Distinguishing FMPs from other debt funds:

• FMPs feature a fixed tenure, restricting redemptions until maturity, unlike open-ended debt funds that allow investors to redeem their units at any time.
• FMPs strategically lock in prevailing interest rates upon investment, shielding investors from market fluctuations, a characteristic not shared by other debt funds.
• FMPs adopt a buy-and-hold strategy, minimizing frequent portfolio security trading. This approach contributes to a lower expense ratio for FMPs compared to other debt funds.
• FMPs stand out for their tax efficiency, particularly for high-tax bracket investors. The inclusion of indexation benefits for long-term capital gains tax sets them apart, as other debt funds are subject to slab rates for short-term gains and a 20% rate with indexation for long-term gains.

Differences between FMPs and FDs

The differences between the FMPs and FDs are mentioned in the below table:

Who should invest in FMPs?

FMPs are well-suited for a specific investor profile:

• Investors prefer solidity and security in their portfolios, with a preference for lower-risk exposure.
• Individuals with a predetermined investment timeframe align with the fixed tenure characteristic of FMPs.
• Investors with defined financial objectives, as FMPs, can be tailored to meet specific goals within a fixed time frame.
• For those looking to optimize their tax planning, as FMPs offer tax-efficient features, it is particularly beneficial for long-term capital gains.
• Investors are comfortable with occasional Net Asset Value (NAV) fluctuations, understanding the trade-off for potential stable returns.
• Individuals desiring a balance between risk and return, where FMPs, compared to equity funds, offer a lower-risk, lower-return investment option.
• Investors are willing to commit funds for the entire New Fund Offer (NFO) tenure, given the limited liquidity during this period.

How fixed maturity plans are taxed?

Fixed maturity plans (FMPs) are taxed differently depending on the duration of the investment and the option chosen by the investor. Here is a summary of the tax implications of FMPs:

• Tenure Less Than 3 Years (Short-term Capital Gains): If the Fixed Maturity Plan (FMP) is held for less than 3 years, any capital gains are treated as short-term capital gains (STCG). Taxation occurs at the individual's peak applicable tax rate.
• Tenure More Than 3 Years (Long-term Capital Gains): For FMPs held for over 3 years, they qualify as long-term capital gains (LTCG), subject to a flat 20% tax rate after considering indexation. The benefit of indexation is notable due to the typically higher inflation rate, resulting in a potentially reduced tax liability.
• Dividend Option and Dividend Distribution Tax (DDT): Opting for the dividend option triggers the deduction of dividend distribution tax (DDT) by the fund house at a rate of 11.9% before disbursing dividends to the investor.
• Securities Transaction Tax (STT) Exemption: FMPs do not impose any securities transaction tax (STT), providing a cost-effective aspect for investors in comparison to certain other financial instruments.

If you are invested in FMPs and don’t know the tax implications, our tax experts will help you understand tax and minimize your tax burden. Book Consultation Today!

SBI mutual fund fixed maturity plan

SBI Mutual Fund presents a diverse range of Fixed Maturity Plans (FMPs), representing close-ended debt schemes with predetermined tenures. These FMPs strategically invest in debt and money market instruments, all maturing on or before the scheme's specified maturity date. The overarching goal of SBI FMPs is to offer investors a combination of regular income and capital appreciation, achieved by securing prevailing interest rates at the time of investment. Tailored for those seeking low-risk, tax-efficient, and long-term investment avenues, SBI FMPs exemplify a prudent choice for astute investors.

Here are insights into some of the SBI FMPs currently available or recently launched:

1. SBI Fixed Maturity Plan (FMP) - Series 69 (367 Days) - Regular Plan:

Launch Date: February 24, 2024
Maturity Date: February 25, 2025
Indicative Portfolio Allocation: 80-100% in corporate bonds, 0-20% in money market instruments.
Investment Parameters: Minimum investment of Rs. 5000, maximum investment of Rs. 2 crore.
Options: Both growth and dividend options are available.

2. SBI Fixed Maturity Plan (FMP) - Series 72 (1239 Days) - Regular Plan:

Launch Date: March 26, 2024
Maturity Date: April 18, 2028
Indicative Portfolio Allocation: 80-100% in government securities, 0-20% in money market instruments.
Investment Parameters: Minimum investment of Rs. 5000, maximum investment of Rs. 2 crore.
Options: Both growth and dividend options are offered.