There are many different types of mutual funds available for investors, and one such category is the Fixed Maturity Plan (FMP). Many investors are not fully aware of FMPs.
However, it is important to know that FMPs are similar to fixed deposits (FDs) in one key way — they come with a fixed maturity date.
For investors who prefer safety and stability, FMPs can be a good investment option. In many cases, they also have the potential to offer better returns than traditional fixed deposits.
This article explains what FMPs are, how they work, who should invest in them, their benefits and drawbacks, and whether it is possible to invest in them through SIP.
What Is a Mutual Fund FMP?
A Fixed Maturity Plan (FMP) is a type of closed-ended debt mutual fund.
The term “closed-ended” means that the fund is open for investment only for a limited period. Once this investment window closes, investors cannot invest new money in the fund.
Unlike equity mutual funds, FMPs do not invest in the stock market. Instead, they invest in relatively safe debt instruments such as:
Government bonds
Corporate bonds
Treasury bills
Debentures
Because these instruments are generally more stable, FMPs carry lower risk compared to equity funds.
How Does an FMP Work?
When an Asset Management Company (AMC) launches an FMP, it clearly defines the maturity period of the fund. This period can be 1 year, 3 years, 5 years, or even longer.
After collecting money from investors during the subscription period, the AMC invests this money in debt instruments that have maturities matching the fund’s tenure.
Since the investments are held till maturity, the impact of interest rate fluctuations is reduced. As a result, FMPs are able to offer more stable and predictable returns compared to other market-linked investments.
Which Investors Are Better Suited for FMP?
FMPs are especially suitable for investors who:
Want low-risk investment options
Need funds after a fixed time period
Are looking for returns higher than fixed deposits
Want to take advantage of tax-saving opportunities
Prefer stability over high-risk, high-return investments
Major Benefits of Investing in FMP
Predictable Returns
Before investing in an FMP, investors usually have an idea of the expected return range. Although returns are not guaranteed, they are relatively stable because the fund invests in fixed-income debt instruments.
Low Risk
Compared to equity mutual funds, FMPs carry significantly lower risk. Even during market volatility, FMPs remain relatively stable.
Tax Benefits
If an investor stays invested in an FMP for more than three years, they can benefit from indexation. Indexation adjusts the purchase cost according to inflation, which helps in reducing the overall tax liability.
No Entry or Exit Load
Most FMPs do not charge entry or exit fees, meaning investors do not have to pay extra charges at the time of investment or maturity.
Protection During Market Volatility
During periods of uncertainty in the stock market, FMPs help balance an investment portfolio and reduce overall risk.
Disadvantages of Investing in FMP
While FMPs have several advantages, they also come with some limitations:
It is difficult to withdraw money before maturity
The invested amount remains locked in for the entire tenure
Losses may occur if a company issuing bonds defaults
After maturity, there is no guarantee that future investments will offer the same interest rate or returns
Can You Invest in FMP Through SIP?
The simple answer is no.
A Systematic Investment Plan (SIP) allows investors to invest small amounts regularly, usually every month. However, an FMP requires a lump-sum investment during a limited subscription period.
Since FMPs are closed-ended funds with a fixed investment window, investing through SIP is not possible.
