Tuesday, 1 February 2011

Fixed Maturity Plan (FMP) is a good short term investment option

Investment and investing is quite personal and the investor himself/herself has to take decision about the goal of investment, in what financial instrument should be invested in, how much amount is to be deposited and how long it should be held up in the investment plan etc. For taking such a decision he or she has to be aware of various investment plans and its advantages and disadvantages, earnings etc. You have already read so many investment options and methods of investment in previous posts. Here we are sharing about Fixed Maturity Plans which are commonly known as FMP.

Fixed Maturity Plan is a type of mutual fund which gives a fixed return for a period of time. It is just like fixed deposits in banks, but the main difference is that the return (profit) is not guaranteed, even if it gives more return than fixed deposit. It has a low amount of risk and when it compared to no risk fixed deposits, the return is not guaranteed in FMPs. The maturity of Fixed Maturity Plans is varied from one month to 3 years.  At the time of new FMP offer the time period also disclosed and it is a close ended scheme. One can invest in FMP only at the time of initial offer and can redeem only after the stipulated period. But most of the FMPs allowed a premature exit with an exit load.

Even though the FMPs do not offer a fixed return as per Fixed Deposit, the risk is comparatively low with other equity related mutual funds, because the FMPs invested the pooled money of investors in AAA or P1+ rated financial instruments which has only short term maturity period. Most of the FMPs can do well with the close ended nature and investors allow the money in the scheme itself till the maturity period.

In the tax point of view FMPs are under Capital Gain Tax and attract only 10% or 20% as the case may be. But Fixed deposit attracts straight 30% tax for the highest tax brackets.

As its short term nature, Fixed Maturity Plans are convenient for the investor to plan his investment to satisfy his short term and long term financial goals. So we advise you to plan your investments wisely and earn a maximum return from your minimum source of money.

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1 comment :

  1. Useful info, also, if I may add.. Before jumping into the stock market, assess your tolerance
    for risk. The stock market can be a great way to make money, but
    it isn't for everyone. If you enter into it, you will have to take some risks and to some, those risks will feel quite large. If you have no tolerance for risk, it might be better to realize that the stock market just isn't for you.