FMPs now back in the game, promise more bang for buck
In September, mutual funds launched 12 FMPs and seven such schemes have been lined up in October, according to mutual fund tracker Morningstar India.
By Nishanth Vasudevan, ET Bureau |
MUMBAI: Fixed Maturity Plans or FMPs ��� that helped fund houses turbocharge their assets under management ��� appear to be making a comeback, albeit in a smaller way. Hardening interest rates, improving financials of companies and a taxation benefit are drawing some investors back to this close-ended debt product.
���Investors are taking interest in FMPs again because yields have become attractive vis-��-vis fixed deposits,��� said Krishnan Sitaraman, director, Crisil Fund Services.
In September, mutual funds launched 12 FMPs and seven such schemes have been lined up in October, according to mutual fund tracker Morningstar India.
But industry officials said the money collected from FMPs of late has been insignificant compared to the period before January 2008. This is because current participation in FMPs is restricted to mostly institutional investors, in stark contrast to the earlier period, when the product was sought after by wealthy individuals too.
FMPs invest in government securities, money market instruments and corporate bonds. The product was popular, as mutual funds were then allowed to indicate returns that were locked-in at the start of the plan. Investors��� fetish for the product started waning from mid-2008 after the financial health of some companies ��� mostly real estate and non-banking finance companies ��� which were part of the FMP portfolios, came under scrutiny. Among other issues, the redemption freeze by select mutual funds, following the money supply squeeze in October, also left a bad taste among investors. Market regulator Sebi hit the final nail on the coffin this January, barring FMPs from indicating returns in advance.
With the rebound in stock markets over the past six months aiding companies repair their balance sheets, fears about defaults have eased, partly sparking interest in FMPs.
���Portfolios are of a better quality today compared to what they were a year ago, and they get indexation benefits too,��� Mr Sitaraman said. Indexation helps lower long-term capital gains, thereby reducing tax liability. Both FMPs and bank FDs offer 6.5-7% for a year, but indexation benefits make FMPs more attractive to some.
Despite the recent investor interest in FMPs, brokers feel they are unlikely to regain the popularity they enjoyed during their heydays because of the ban on indicating returns to investors.
���Though mutual funds are informally informing a few distributors about the indicative returns, it is being passed on only to select investors,��� said the distributor services head of a retail brokerage house. ���Also, many investors are waiting for interest rates to harden further, as the risk-reward benefit for investing in FMPs vis-��-vis bank deposits is not good enough,��� he added.
���Investors are taking interest in FMPs again because yields have become attractive vis-��-vis fixed deposits,��� said Krishnan Sitaraman, director, Crisil Fund Services.
In September, mutual funds launched 12 FMPs and seven such schemes have been lined up in October, according to mutual fund tracker Morningstar India.
But industry officials said the money collected from FMPs of late has been insignificant compared to the period before January 2008. This is because current participation in FMPs is restricted to mostly institutional investors, in stark contrast to the earlier period, when the product was sought after by wealthy individuals too.
FMPs invest in government securities, money market instruments and corporate bonds. The product was popular, as mutual funds were then allowed to indicate returns that were locked-in at the start of the plan. Investors��� fetish for the product started waning from mid-2008 after the financial health of some companies ��� mostly real estate and non-banking finance companies ��� which were part of the FMP portfolios, came under scrutiny. Among other issues, the redemption freeze by select mutual funds, following the money supply squeeze in October, also left a bad taste among investors. Market regulator Sebi hit the final nail on the coffin this January, barring FMPs from indicating returns in advance.
With the rebound in stock markets over the past six months aiding companies repair their balance sheets, fears about defaults have eased, partly sparking interest in FMPs.
���Portfolios are of a better quality today compared to what they were a year ago, and they get indexation benefits too,��� Mr Sitaraman said. Indexation helps lower long-term capital gains, thereby reducing tax liability. Both FMPs and bank FDs offer 6.5-7% for a year, but indexation benefits make FMPs more attractive to some.
Despite the recent investor interest in FMPs, brokers feel they are unlikely to regain the popularity they enjoyed during their heydays because of the ban on indicating returns to investors.
���Though mutual funds are informally informing a few distributors about the indicative returns, it is being passed on only to select investors,��� said the distributor services head of a retail brokerage house. ���Also, many investors are waiting for interest rates to harden further, as the risk-reward benefit for investing in FMPs vis-��-vis bank deposits is not good enough,��� he added.
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