What is FMP?
FMP or Fixed Maturity Plan is a type of mutual fund that involves investing in debt with a maturity date that is pre-determined and fixed. Through FMPs, investors will be able to earn some income by means of interest payments but with quite minimal risk. Fixed Maturity plans are also referred to as close-ended plans which basically mean that no additional investment is allowed in situations wherein the NFO or new fund offer closes. So for example a particular NFO is open only for 2 days, marketing and investing activities should be done within this particular period. After 2 days, the NFO will be closed and no further investment to the Fixed Maturity Plan is allowed.
Fixed Maturity Plans share some characteristics of a typical fixed deposit bank account. The major difference is that in a fixed deposit at any given bank, the maturity amount is guaranteed by the bank. It simply implies that a depositor will definitely get his/her deposited amount from the bank since its status is guaranteed. FMPs on the other hand have “indicated” maturity amounts which simply mean that the returns of investment are only “indicated” but not guaranteed by the bank.
FMPs are usually invested in various money market instruments, CDs or commercial deposits, corporate types of bonds, and commercial papers. There are also rare instances wherein Fixed Maturity Plans are invested on fixed bank accounts or deposits. But wherever the FMP goes to, the only basic rule is to place it in something that has a similar maturity date. If the FMP has a duration of 2 years for example, investments on commercial papers must also have a maturity of 2 years. With this scenario, no buying and selling of the FMP takes place within the duration of the plan. And this lowers the price risk exposure of the investor.
