Several fund houses withdraw FMPs as investors shun debt

MUMBAI: Fixed maturity plans, one of the most popular mutual fund products, seem to have lost some of their charm among investors. Indeed, a few fund houses had to recently withdraw their issuances for want of investors.

In the past few months about a dozen large-to-mid-sized fund houses have recalled their fixed maturity plans (FMPs) during the subscription phase. Inability on the part of fund houses to mobilise the Sebi-mandated 'minimum target amount' of Rs 20 crore was one of the reasons for fund houses withdrawing their fixed term plans. Also, many fund houses could not also meet the mandatory '20 investors' norm.

As per Sebi guidelines, individual FMPs should have a minimum of 20 investors and no single investor shall account for more than 25% of the fund. Apart from about 20 FMP cancellations, fund houses like ICICI Mutual, L&T Mutual, Tata Mutual, UTI, DWS and Reliance MF, among others, had to extend their subscription phase to pool in necessary investments and the required number of investors.

"We had to recall only two plans... In fact, a couple of large investors backed out at the last minute. We've successfully launched two other funds after the 'withdrawn' issue," said the marketing head of a mid-sized fund house which recalled an FMP issuance in May.

Fixed maturity plans are close-ended schemes of a specific duration. This genre of funds invests in debt and money market instruments maturing on or before the date of the maturity of the scheme. Fixed term plans become attractive when short-term rates move up. People or corporates with investible surpluses and a three-month to one-year investment horizon, lock in money at higher yields. The product loses its charm when rates start moving the downward trail.