Fixed maturity plans are close ended debt schemes that are open for investment for a few days during launch and then closed until maturity.
They come with a pre determined tenure and are usually offered for tenures varying from 30 days to five years and the most commonly offered tenures are 30 days, 180 days, 370 days and 395 days.
They invest in highly rated securities, certificate of deposits, money market instruments, bonds and government securities
The basic objective is to seek consistent returns over a fixed period and aiming to protect investors against market fluctuations.
They are similar to bank fixed deposits in that the money invested is locked in for the tenure of the scheme and can be described as debt funds that invest in government securities and company debt.
They usually have no equity component, unless you invest in one that chooses to have a limited equity component.
They try to protect investors against market fluctuations and offer flexibility to their fund managers and let them plan on their exact investments at the start.
This allows investors to know and be informed about the approximate returns they can get by investing in these plans.
They are ideal for all investors wanting benefits across different parameters, such as lower market risk and tax efficient returns.
Investors can choose the plan that match their investment requirements and also their cash flow requirements.
You can invest in fixed income instruments like certificate of deposits , commercial papers , other money market instruments, corporate bonds, non-convertible debentures of reputed companies, or in securities issued by the government, maturing in line with the time limit of the scheme.
Since they are closed ended schemes, an investor can invest only during the initial offer period of the scheme, and redeem only at the time of maturity of the series under the scheme.
However, unit holders holding units in demat mode, can exit by selling their units on the stock exchange where units of the scheme are listed.
They are least exposed to interest rate risk, as the fund holds instruments till maturity getting a fixed rate of return.
One can invest in highly rated credit instruments with maturity profiles of the invested securities in line with the maturity of the scheme, so there is low credit risk, with minimal liquidity risk involved.
It works as asset allocation tools, that endeavor to provide the investor with stable returns for the period of investment.
They are also better as a tax saving instrument and if it is longer than a year, investors may choose to avail indexation benefits to check their taxable liability against prevalent inflation for the period.
When there are high prevailing rates, and with other asset classes not adequately performing,investors can invest in fixed maturity plans which lock in returns by investing in instruments maturing on or before the maturity of the scheme.
They can make use of prevailing high yields, without assuming the volatility risk of investing in a time duration product.
However they are not allowed to provide indicative yields to investors while in fixed deposits the interest rates are known in advance.
If you go for the dividend option ,then they are subject to dividend distribution tax plus applicable surcharge and cess, which is paid by the fund and is tax free for investors.
If investors opt for the growth option, they are subject to capital gains tax and in case of a growth option with a maturity of more than one year, an individual can use the benefit of long term capital gains where the tax rate is 10% without indexation benefits or 20% with indexation benefits.
Those plans with tenure of less than a year, the dividend option is more appropriate as it results in lower tax incidence compared to the growth option, which would be taxed at the individual income tax slab rates.
It also offer double indexation benefit, which comes into play when the scheme purchase is made in one financial year and the maturity of the scheme is after two financial years.
Indexation for tax purposes allows returns generated to be adjusted for inflation so that the investors are taxed only on the real returns.
Thus, fixed maturity plans maybe riskier but compared with fixed deposits they offer better returns to the investor.
They come with a pre determined tenure and are usually offered for tenures varying from 30 days to five years and the most commonly offered tenures are 30 days, 180 days, 370 days and 395 days.
They invest in highly rated securities, certificate of deposits, money market instruments, bonds and government securities
The basic objective is to seek consistent returns over a fixed period and aiming to protect investors against market fluctuations.
They are similar to bank fixed deposits in that the money invested is locked in for the tenure of the scheme and can be described as debt funds that invest in government securities and company debt.
They usually have no equity component, unless you invest in one that chooses to have a limited equity component.
They try to protect investors against market fluctuations and offer flexibility to their fund managers and let them plan on their exact investments at the start.
This allows investors to know and be informed about the approximate returns they can get by investing in these plans.
They are ideal for all investors wanting benefits across different parameters, such as lower market risk and tax efficient returns.
Investors can choose the plan that match their investment requirements and also their cash flow requirements.
You can invest in fixed income instruments like certificate of deposits , commercial papers , other money market instruments, corporate bonds, non-convertible debentures of reputed companies, or in securities issued by the government, maturing in line with the time limit of the scheme.
Since they are closed ended schemes, an investor can invest only during the initial offer period of the scheme, and redeem only at the time of maturity of the series under the scheme.
However, unit holders holding units in demat mode, can exit by selling their units on the stock exchange where units of the scheme are listed.
They are least exposed to interest rate risk, as the fund holds instruments till maturity getting a fixed rate of return.
One can invest in highly rated credit instruments with maturity profiles of the invested securities in line with the maturity of the scheme, so there is low credit risk, with minimal liquidity risk involved.
It works as asset allocation tools, that endeavor to provide the investor with stable returns for the period of investment.
They are also better as a tax saving instrument and if it is longer than a year, investors may choose to avail indexation benefits to check their taxable liability against prevalent inflation for the period.
When there are high prevailing rates, and with other asset classes not adequately performing,investors can invest in fixed maturity plans which lock in returns by investing in instruments maturing on or before the maturity of the scheme.
They can make use of prevailing high yields, without assuming the volatility risk of investing in a time duration product.
However they are not allowed to provide indicative yields to investors while in fixed deposits the interest rates are known in advance.
If you go for the dividend option ,then they are subject to dividend distribution tax plus applicable surcharge and cess, which is paid by the fund and is tax free for investors.
If investors opt for the growth option, they are subject to capital gains tax and in case of a growth option with a maturity of more than one year, an individual can use the benefit of long term capital gains where the tax rate is 10% without indexation benefits or 20% with indexation benefits.
Those plans with tenure of less than a year, the dividend option is more appropriate as it results in lower tax incidence compared to the growth option, which would be taxed at the individual income tax slab rates.
It also offer double indexation benefit, which comes into play when the scheme purchase is made in one financial year and the maturity of the scheme is after two financial years.
Indexation for tax purposes allows returns generated to be adjusted for inflation so that the investors are taxed only on the real returns.
Thus, fixed maturity plans maybe riskier but compared with fixed deposits they offer better returns to the investor.
No comments:
Post a Comment