Fixed Maturity Plan Mutual Funds: All You Need to Know

You can think of a fixed maturity plan like a train journey. It has a fixed start and end. You board once, stay for the entire ride and get off with your returns. It’s steady, predictable and not affected by every bump in the market. Perfect if you want your money to grow quietly in the background.

Read on to learn more about fixed maturity plan mutual funds.

What is Fixed Maturity Plan?

FMP full form is fixed maturity plan. It is essentially a type of mutual fund. Which comes with a fixed lock-in period. This means your money stays invested until the plan matures. These are close-ended funds. Which means you can invest only during the initial offer period and redeem the money at maturity. 

These types of plans majorly invest in fixed-income instruments like bonds or deposits. Which also matured around the same time as the plan. So, you get more stable and predictable returns.

Also, FMPs are taxed like other debt mutual funds. If you hold them for 3 or more years, you get indexation benefits. Which helps lower your taxes on returns.

How Do Fixed Maturity Plans Work?

Fixed maturity plan mutual funds work on a simple idea – the fund and the investments mature at the same time. This helps the fund avoid changes due to market movements.

Here’s how the process works:

• Step 1: Launch 

A fund house launches an FMP through a New Fund Offer (NFO).

• Step 2: You invest

You can invest only during this NFO window.

• Step 3: Fund manager selects assets

The manager invests the collected money in bonds or deposits with the same maturity as the plan.

• Step 4: Lock-in period

Your money stays locked for the full duration.

• Step 5: Payout

When the FMP matures, you get back your investment plus any interest earned.

Because all investments mature together, returns are more predictable.

What Do Fixed Maturity Plans Invest In?

FMPs only invest in fixed-income securities. These are low-risk and provide steady income.

Here are the common instruments:

• Corporate bonds: Issued by trusted companies with good credit ratings
• Government securities: Backed by the government and considered very safe
• Certificates of Deposit (CDs): Short-term deposits issued by banks
• Commercial Papers: Short-term borrowings by companies
• Non-Convertible Debentures (NCDs): Bonds that cannot be converted into shares

All these assets are chosen carefully. They match the fund’s maturity, so everything ends at the same time.

Key Features of Fixed Maturity Plans

A fixed maturity plan comes with unique features that make it different from other mutual funds:

• Fixed lock-in: You stay invested till maturity. No early exit is allowed
• Close-ended structure: Investments are only accepted during the NFO
• Lower risk: Since FMPs invest in debt, they are safer than equity funds
• Predictable returns: You know roughly how much to expect at the end
• Tax efficiency: If you hold the fund for more than 3 years, indexation helps lower your tax

These features make FMPs a good choice for risk-averse investors.

Pros and Cons of Fixed Maturity Plans

Like all investment instruments, FMPs come bearing certain benefits and limitations:

Benefits

• More stable returns: Not much impact from interest rate changes
• Tax savings: If held for 3+ years, you get indexation benefits on gains
• Lower market risk: Ideal for those who don’t like stock market ups and downs
• Easy planning: Since maturity is fixed, it’s simple to plan goals

Risks

• No early exit: You can’t take your money out before the fund ends
• Not guaranteed: Returns are expected, not fixed like bank deposits
• Low liquidity: FMPs are listed on exchanges, but it’s hard to sell them mid-way

Fixed Maturity Plan vs Other Mutual Funds

Here’s how an FMP is different from regular debt mutual funds:

Feature	Fixed Maturity Plan	Open-ended Debt Fund
Entry	Only during NFO	Any time
Exit	Only at maturity	Any time
Liquidity	Low	High
Risk	Lower	Varies
Return visibility	Higher	Less predictable
Tax after 3 years	With indexation	With indexation

If you want more investment clarity and lower risk, then FMP can be a better choice.

Who Should Consider a Fixed Maturity Plan?

FMPs are a good match for people who:

• Want stable returns with less market risk
• Can lock their money for 3 to 5 years
• Are looking for better tax treatment on debt investments
• Prefer set-and-forget options over active trading

FMPs work best for planned goals like saving for your child’s education, a wedding or a large purchase. But they’re not ideal if you need quick access to money. That’s where Fibe can help. If you have existing investments in mutual funds, you don’t need to liquidate them during a cash crunch.

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