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Best Fixed Maturity Plans

These are fixed tenure debt MF schemes where the maturity of debt instruments invested in is in line with the fund tenure.

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Best Fixed Maturity Plans to Invest in 2023

Fund NameAUM in CrSince Inception
Nippon India Interval Fund Quarterly Interval Fund Series III (G)
Nippon India Interval Fund Quarterly Interval Fund Series I (G)
UTI Fixed Income Interval Fund Series 2 Quarterly Interval Plan VI (G)
Nippon India Interval Fund Monthly Interval Fund Series II (G)
Nippon India Interval Fund Quarterly Interval Fund Series II (G)
Nippon India Interval Fund Monthly Interval Fund Series I (G)

Note : *NA implies that Fund is relatively new. Not enough data available

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What are Fixed Maturity Plans?

Fixed Maturity Plans or FMPs are close ended debt mutual funds that come with a fixed lock-in period ranging between 30 days to 5 years. FMPs primarily invest their assets in fixed income instruments such as certificates of deposits, commercial papers, treasury bills and bonds that lock in yields, etc. The main objective of this scheme is to eliminate the interest rate fluctuation in debt markets and provide steady returns to investors over the fixed tenure. 

Individuals can invest in FMPs only during the New Fund Offer (NFO) period through subscription requests. After completing the NFO period, no investment can be made into FMP. And finally, investors can redeem their investment only on maturity. Also, no premature withdrawal is allowed from the scheme. Furthermore, investors can only choose to invest in a lump sum and cannot choose the SIP route for these funds. 

Features of Fixed Maturity Plans

The following are the key features of FMPs.

Fixed Period

These plans have a fixed lock in period where investors cannot redeem their money before maturity once they have invested during the NFO period. This helps investors to estimate the returns they can expect from their investment. Also, they can plan their cash flow needs based on their financial objective. 

Close Ended Scheme

In FMP, investors can choose to invest only during the offer period, and redemption is allowed only at the time of maturity. Thus, after the offer period, no additional investment is allowed. However, there is an option for investors who hold units in Demat form. They can sell the units of a fixed maturity plan listed on a stock exchange. This way, investors can exit the FMP scheme before its tenure. 

Fund Strategy

Fixed maturity plans primarily invest in debt instruments like commercial papers (CP), certificate of deposits (CD), money market instruments, corporate bonds, government bonds, non-convertible debentures(NCD) of highly rated companies. The fund manager builds a portfolio where the maturity of these securities is in line with the fund maturity. 

Interest Rate Sensitivity

FMPs are less sensitive to interest rate movement because the fund holds the instruments till maturity, which helps to yield a relatively fixed interest rate. Also, investment in FMPs are beneficial during a falling interest rate scenario because interest rates are for a longer period. 

Credit Risk

Depending on the nature of the FMP  the portfolio that comprises of debt instruments and money market instruments which aims to minimise the risk of default. However, this do not guarantee the safety or low credit risk. The ratings of some of the underlying instruments can change during the course of time as was seen a few years ago. 

Indexation Benefit

Most of the FMPs are issued for a maturity period of 3 years or more. In this case, long term capital gains tax rules apply where indexation benefit is also included for these non-equity investments. Indexation provides the benefit for factoring inflation which reduces the overall tax liability. 

Advantages of Investing in Fixed Maturity Plans

The following are the advantages of investing in Fixed Maturity Plans.

Stable Investment

Investment in FMPs is locked in for a fixed tenure where they go through the market volatility. However, debt funds are less vulnerable to market fluctuations. They tend to stabilise their performance over a period of time. Also, FMPs are least affected by market movements. 

Stable Asset Structure

Redemption from FMP can be done only on specified dates, i.e. when the fund matures. This provides fund managers with a stable asset base that is not vulnerable to frequent redemptions. As a result, the fund manager need not worry about frequent cash inflow and outflow. This enables them to formulate a comfortable investment strategy. 

Low Cost

FMPs have a lower expense ratio than other open-ended mutual fund schemes. They have lower turnover costs as there is limited buying and selling of securities. This results in lower management and operating costs. 

Who Should Invest in Fixed Maturity Plans?

FMPs are suitable for investors with a low-risk tolerance level and looking for a relatively secure investment tool that is less sensitive to market fluctuations. Investors who prefer bank deposits can invest in FMPs that offer higher returns. However, they are not as safe as bank deposits. The Net Asset Value(NAV) of these funds keeps changing with interest rate movements and several other economic factors. Thus, investors can allocate some portion of their corpus if they wish to diversify their investment portfolio. 

Investors can invest in FMPs based on their investment horizon, financial objectives and cash flow requirement. They can estimate the returns from these schemes as the portfolio invests in securities with fixed maturity and yields. Thus, this can be an effective tool to mitigate the risk associated with stock market fluctuations. Moreover, keep in mind that their corpus will be locked in until maturity with no liquidity. Investors must be aware of the duration of FMP before investing. 

Where do Fixed Maturity Plans Invest its Corpus?

As a fixed maturity plan is a non-equity investment, it primarily invests its corpus in various debt and money market instruments. The following are some of the key debt instruments of FMPs are – 

Generally, FMPs invest their corpus in high rated securities. The above list of FMP instruments is indicative. The scheme’s portfolio, credit quality and maturity vary from one scheme to another. 

Tax on Fixed Maturity Plans

Fixed maturity plans are taxable under the head capital gains. The rate of tax depends on the period of holding. If you hold your investment for more than 36 months from the date of investing then long term capital gains are applicable. Long Term Capital Gain attracts a tax rate of flat 20% with the benefit of indexation. With indexation, you can adjust the cost of investment. After applying the indexation your cost of investment will rise leading to a saving in taxes.  If you hold your investment for a period of less than 36 months then short term capital gain is applicable. The total short term capital gain is added to your total income and it is taxable at the applicable slab rate.  

Difference Between Fixed Maturity Plans and Fixed Deposits

New investors often get confused between fixed maturity plans and fixed deposits. While their investment tenure is the same, the following are the key differences between fixed maturity plans and fixed deposits.

ParameterFixed Maturity Plans (FMP)Fixed Deposit (FD)
ReturnsThe returns from FMP are market-linkedInvestment in FD offers guaranteed returns to investors
LiquidityFMPs have low liquidity as investors cannot withdraw before the maturity periodFDs have high liquidity as it offers premature withdrawal options with a penalty. 
Maturity PeriodThe maturity period varies from 30 days to 5 yearsThe maturity period varies depending on the bank. It is usually for 7 days to 10 years
Tax– FMP Dividend – DDT (Dividend Distribution Tax) is levied with the benefit of indexation.- FMP Growth – Capital gains tax rules apply with the benefit of indexationInterest income is added to the annual income and tax as per the individual tax slab rate

A Fixed Maturity Plan invests in debt securities and does not carry an equity component, barring the exception where it opts for limited equity allocation. On the other hand, fixed deposits offer guaranteed returns, and investors know what they will receive at the end of investment tenure. Also, FMPs tend to provide higher returns during a falling interest rate scenario. Investors can choose to invest based on their investment horizon, risk tolerance levels and investment objectives.