When we think of Mutual Funds , we usually only think of Equity Mutual Fund Schemes , but we forget to take notice that , there are other kind of funds too that invest in debt , which are comparatively less risky and would normally given lower returns.
In both these kind of Mutual Funds schemes, Equity and Debt , after you buy the units , you would then need to decide when to sell them and I find that, this decision of when to sell is not so easy to take especially for a small investor .
Apart from these normal Mutual Fund schemes , there is another product called FMP , that Mutual Funds offer and this is a good product to invest in
Features of a FMP
- Duration :As the name suggests , they are of a Fixed duration , when you are buying a 90 day FMP , you would know that at the end of 90 days , your invested amount would be returned back to you , along with the profits or dividends . Currently there are FMPs available in the range of 35 days to 365 days
- Investment :The FMPs invest only in debt instruments . usually banks and other corporates , when they need large amount of money for small duration , may be less then a year , they come out with corporate FDs or short duration FDs which are available only for large institutions like MFs as they can then invest hundreds of crores . FMPs usually invest in these FDs.
- Rate of return :As per SEBI guide lines MFs are not permitted to disclose the interest rate they can return . So unlike a normal FD , you will not be able to know the rate of return , but it has been usually found that FMP returns are better than a comparable duration FD
- Premature Withdrawal: FMP are listed on the stock market in Demat form hence if you need your money back before the maturity of your FMP you would need to sell your FMP on the stock market.Please note demat is not mandatory to invest in FMP
- Tax : FMP of less a year can be invested with Dividend option , in which case the MF company will pay the dividend distribution Tax , hence any dividend that the investor receives would be Tax free.And for FMP which are for more than a year , Investors can choose the growth option and this would be tax efficient using Indexation ( Watch out for a post on Indexation and how it saves tax )
- Offer Period: Unlike a normal MF scheme , which can be bought at any time , FMP have fixed offer period , usually a of couple days and investors can buy the FMP only during those days.
FMP currently on offer :
Image : FreeDigitalPhotos.net,Photographer: Nutdanai Apikhomboonwaroot
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