Rising rates a positive for FMPs

With the rising interest rates FMPs form a good investment option. These investment options are able to deliver good returns in comparison to the traditional saving instruments. Let's explore fixed maturity plans (FMP).

Fixed Maturity Plans are the close-ended debt funds which dominantly invest in debt instruments. These include commercial papers, certificate of deposits, corporate bonds and government securities. The duration of the instruments invested depends upon the maturity of the scheme that means 3 year FMP will invest in the instruments which will mature in 3 years.

FMPs basically meant for risk-averse investors, these schemes ensure low risk of capital loss than that of equity funds. These funds usually invest in the instruments which are highly rated. Moreover, these instruments are held till maturity so that the churning cost is also saved. Which makes it more cost efficient for the risk-averse investor.

These funds offer an indexation benefit which is one added advantage for the investors. These funds are closed-ended funds so they don’t offer an exit route which can be a worry for investor as these funds have interest rate risks. These funds don’t come up with any insurance on the investment so default or delay in payments from the underlying paper can affect the return very significantly. So one must gather good knowledge before investing into these funds. For this scheme information document can be the best source to get insight about where the fund will invest.