IDFC MF launches Fixed Maturity Plans

IDFC Mutual Fund launches two Fixed Maturity Plans IDFC FMP Yearly Series 56 and IDFC FMP 2 Year Series 2.

Details:

IDFC FMP 2 Year Series 2

IDFC FMP Yearly Series 56 

Fixed Maturity Plans (FMPs)

Fixed Maturity Plans (FMP’s) provide investors with a good alternative to fixed deposits given that they are More Tax Efficient”. This is especially so during volatile times when investors are likely to be more risk averse.” These schemes are close-ended debt scheme with an objective to seek to generate reasonable returns and reduce interest rate volatility primarily through investment in money market and short term debt instruments with a maturity profile generally in line with the Plan’s duration.

Fixed Maturity Plans (FMPs)
If an investor has surplus amount to invest, knows the time horizon and wanted to deploy the fund efficiently with least risk of capital & return, but wishes to optimize her investment – Fixed Maturity Plan is the right scheme. Though the returns are not assured, he may expect the prevailing market rates with least risk.

Why FMP??
Fixed Tenure: The tenure of FMP is fixed making investing easier for the fund manager.

Superior returns: FMP’s invest mainly in rated debt instruments where returns*may be higher, an attractive option for risk-averse investors.


Low risk:Historically, very few AAA corporate bonds have been downgraded to default level (BBB) so there is limited credit risk. FMPs primarily invest in AA and above rated debt papers which lowers credit risk.

Lower expenses:Generally expenses ratio charged to FMPs is lower.

Benefits of FMP:

Protection from “Interest rate risk”
Rise in interest rates in the economy reduces the NAV of the income fund and vice-versa.
FMPs mitigate this risk by using a specific investment strategy whereby they invest in instruments that mature in line with the maturity of the FMP.

Conclusion:
FMPs eliminate the interest rate risk. Pre-mature withdrawal shall attract exit load. However even bank deposit attract penalty for premature withdrawal. In the current market volatility one can be safe and do not lose sleep in choosing FMPs. With little more planning staggered FMPs shall be more suited for those who plan expenditure.

Please find below the launch schedule for the upcoming FMP's

HDFC FMP 370D March 2011 (3)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday)

HDFC FMP 182D March 2011 (1)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday)

HDFC FMP 370D March 2011 (4)
Opening Date - 17th March 2011 (Thursday)
Closing Date - 23rd March 2011 (Wednesday)

HDFC FMP 370D March 2011 (5)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 28th March 2011 (Monday)

HDFC FMP 100D March 2011 (3)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 24th March 2011 (Thursday)

HDFC FMP 182D April 2011 (1)
Opening Date - 5th April 2011 (Tuesday)
Closing Date - 7th April 2011 (Thursday)

Fixed Maturity Plans (FMPs): Attractive destination in today's scenario to park your funds.

When interest rates start going up, investors seek options that will give them good returns. FMPs are schemes that invest in fixed income instruments, like certificate of deposits, commercial papers, money market instruments, corporate bonds, debentures of reputed companies or in securities issued by government of India and fixed deposits selected by the fund manager. The basic objective of a FMP is to generate steady returns over a fixed period. Thus, investors are assured of returns if they stay invested in these products for the entire period.

Since these products are of different maturities, investors have the option of buying schemes that suit their requirements. These have lower risk of capital loss due to their investment in debt and money market instruments and are least exposed to interest rate risk as the fund holds the instruments till maturity getting a fixed rate of return. Here, fund managers primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved. Since the instrument is held till maturity, there is a cost saving in respect of buying and selling of instruments.

Take adequate care to ensure that you invest in a FMP whose maturity period matches your anticipated liquidity requirement. FMPs are also listed on the stock exchanges and can be sold prior to maturity as well. However, liquidity of these schemes could pose a problem while trying to exit before maturity.

Tax Treatment:


Short term FMPs are taxed at the marginal tax rate applicable to you as an individual. In case of long term FMPs, the lower of 10% (without indexation benefit) or 20%(with indexation benefit) will be applicable as tax. Indexation is a technique to adjust income payments by means of a price index and is calculated using 'Cost Inflation Index'(CII). CII numbers are released by the government every year. Because of the indexation benefit on long term FMPs, FMPs are favoured by many investors vis-a-vis Fixed deposits, where the gains are taxable at the applicable marginal tax rate.