Indexation benefits make three-year FMPs a good bet.
Come March and there will be a flurry of new fund offers from asset management companies in the country. Most of them will not be for regular equity oriented mutual funds but what are called fixed maturity plans or FMPs -- close-ended debt schemes whose money is invested in fixed-income securities for a specific tenure.
“Coupon rates are going up and, hence, FMPs have become attractive. Debt yields have also been going up. On the other hand, fixed deposit rates are not likely to move up until the Reserve Bank of India increases the rates. The only way to benefit from these rising yields is by investing in debt funds. The AA papers can earn up to 100 bps (1 per cent) more than government securities,” says Vidya Bala, Head of Mutual Funds Research at FundsIndia.
Axis Mutual Fund, Aditya Birla Sun Life Mutual Fund, Invesco Mutual Fund, Reliance Mutual Fund, SBI Funds, Sundaram Mutual Fund are all offering FMPs with durations ranging from 1,159 days to 1,386 days. If you think the duration is inspired by numerology, you are mistaken. By launching FMPs towards the fag end of the financial year, fund houses help investors claim inflation indexation benefit for four years – 2017/18, 2018/19, 2019/20 and 2020/21. The investments would be held for a little more than three years between March 2018 and April 2020.
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