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Fixed Maturity Plans (FMPs) vs. Fixed Deposits

One of our readers, Nikhil, recently commented that Fixed Maturity Plans (FMPs) might be better than Fixed Deposits:

Since Bank Deposits are subject to TDS, it may not be suitable for large investment. Alternatively suggest FMPs. The latest sample offering are as below. Note that if invested in March 07 and if maturity is in April/May 08, you get double indexation benefit.

1. Birla FTP Series - 400 days - 10.35 (Institutional plan) and 9.9% retail plan (indicative)
2.Prud.ICICI - FMP - 13 Months- 10.3/10.0
3.JM FMP - 395 days - 10.4
4.Principal-PNB - FMP - 460 days- 10.30/9.75

Here’s a MoneyControl article that talks about the benefits of FMPs. Personalfn.com offers a tool to find FMPs; select “FMP” in the Nature of Scheme dropdown menu & away you go!

But, I have 2 concerns about FMPs:

  1. They charge a 0.15% - 0.65% expense ratio, which will somewhat reduce the gap with FD returns.
  2. They charge 2-5% entry and/or exit loads, which will have a large impact on the effective returns.

As for the “indexation” benefit, perhaps someone can shed more light on the difference between (long-term tax) deduction on FDs vs. that on FMPs. In general, I tend to prefer the “simpler” investment options, since the complex ones come with so much fine print (and hidden costs) that in the end, you are worse off.

This entry was posted on Friday, March 16th, 2007 at 3:23 pm and is filed under investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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    3 Responses to “Fixed Maturity Plans (FMPs) vs. Fixed Deposits”

    1. Neha Says:
      March 23rd, 2007 at 4:25 pm

      Can you plz suggest some robust FMPs at this time of the year? It seems most of the hdfc planss had 22nd (yesterday) as the last date.

    2. Kaushik Says:
      March 23rd, 2007 at 4:38 pm

      Neha: Try this link: http://www.mutualfundsindia.com/new_launchmfi.asp?flag=&for_script=&scheme=&opt=&news_headline=&views=

      Search for “fixed maturity”. There are several that are open until next week: DBS Chola, LIC, Principal PNB, Standard Chartered.

    3. V Sridevi Says:
      March 28th, 2007 at 3:35 pm

      FMPs are advantageous as far as double indexation benefit is concerned.