Mutual Fund houses flood markets with fixed maturity plans

MUMBAI: Fifteen mutual funds have launched fixed maturity plans ( FMP) barely weeks before the closing of the current financial year. Most of these FMPs will mature in April 2014.

"These fixed maturity plans maturing in April 2014, will fetch investors double indexation benefit," says Gajendra Kothari, MD & CEO, Etica Wealth Management.

He further points out that the yields have also became attractive towards the end of the financial year because of the tight the liquidity situation in the money market.

Ongoing FMPs can be looked at to lock in the elevated yields which may not be available in the next month. Liquidity situation improves as the fixed maturity plans launched last year's March, come for redemption in April.

High net worth individuals falling in the 30.9% tax bracket is the target audience for these products. These individuals end up paying 30.9% tax on interest, if they invest in fixed deposits.

For them such FMP offers a tax efficient source of investing with one year time horizon. These FMPs start in FY2012-2013 and mature in FY2014-2015.

Hence they get indexation benefit for two years. One can expect around 8 % returns from these plans in one year. But the indexation for two years ensures that the returns are tax free in the hands of the investors.

Despite, the possibility of tax free returns, market experts warn investors about the illiquid nature of these schemes. The only way out to the investors is to sell it on the stock exchanges, which in most cases happens at a steep discount to the net asset value. Hence if and only if you can remain invested for the entire year, you can consider investing in these FMPs.