Mutual funds launch FMPs investing in equity and debt

Four mutual fund houses- DWS, Tata, DSP Blackrock and Reliance - have launched fixed maturity plans investing in combination of equity and debt. These are closed ended schemes with three year timeframe.

Typically these schemes invest 80% of money into fixed income instruments and remaining in equities.

Volatile markets have made investors wary of equity funds, say market experts. However the equity valuations are compelling and three year bonds are offering attractive yields, which makes these schemes attractive proposition.

These schemes are aimed at facilitating investors who intend to invest in equity but do not want to risk their capital. Though, a point to note is, none of these schemes offer any capital protection.

However 80:20 structure of debt and equity ensures investors get their money back at the end of three years and investors also get to participate in equities, market observers say.

"Such schemes can be an investment option for those risk averse investors who are looking for some exposure to equities and are willing to remain invested till the maturity of the scheme," says Nikhil Naik, Managing director of Naik Wealth, a mutual fund distributor.

A point to note is these schemes are taxed like a non-equity mutual fund. Dividends announced by such schemes attract a dividend distribution tax at the rate of 28.33% and long term capital gains are taxed at lower of, 20.6% with indexation or 10.3% without indexation.

As the units of these schemes are listed on the stock market, investors should remain invested in these schemes, as units of most such schemes are not frequently traded at net asset value.