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What are Fixed Maturity Plans and Why Should I Invest in Them?

Investing in a particular entity or product is a crucial decision that requires a comprehensive understanding of the market and the potential returns. Read ahead to learn about fixed maturity plans.

  • 3,575 Views | Updated on: Dec 26, 2023

    Key takeaways

  • FMPs offer a combination of stability and capital appreciation, making them an attractive option for investors seeking a balanced portfolio.
  • They are ideal for individuals looking to invest in debt instruments while managing interest rate risk. FMPs also offer predictable returns, making them an ideal choice for risk-averse investors.
  • The FMP investment tenure can range from a few months to several years.
  • Fixed maturity plans offer a low-risk investment option with guaranteed returns and tax benefits. They are ideal for risk-averse investors who want to diversify their portfolios and receive a steady and predictable income stream.

Fixed maturity plans invest in debt and money market assets with a set maturity date. In order to lower the interest rate risk, the securities are bought with the purpose of holding them till maturity.

FMPs offer a combination of stability and capital appreciation, making them an attractive option for investors seeking a balanced portfolio. They are ideal for individuals looking to invest in debt instruments while managing interest rate risk.

FMPs also offer predictable returns, making them an ideal choice for risk-averse investors. In this article, we will delve into the details of FMPs and why they may be a good investment option for you.

What are Fixed Maturity Plans?

A fixed maturity plan (FMP) is a type of closed-ended debt-based mutual fund. Investing in a debt mutual fund with a set term would mean doing just that. This fund primarily invests in fixed-income securities with maturities that coincide with the fund’s own.

The fund manager invests the money collected from investors into debt securities with a maturity similar to the fund’s investment tenure. The FMP investment tenure can range from a few months to several years.

Benefits of Fixed Maturity Plans

Stock investing can be a terrific method to increase your wealth and achieve financial independence. With so many options available, it can be challenging to determine which stocks to invest in. Here are seven reasons why investing in stocks is a smart choice and why you should consider investing in them.

Potential for High Returns

One of the main reasons why you should invest in stocks is the potential for high returns. While stocks can be volatile, over the long term, they have historically produced higher returns than other investment options such as bonds and savings accounts.

Diversification

Investing in stocks can help diversify your FMP investment portfolio. By spreading your investments across multiple stocks, you can reduce your risk of losing money due to the performance of a single stock. Additionally, investing in various stocks can help you take advantage of market trends and economic cycles.

Compound Interest

Investing in stocks allows you to take advantage of compound interest, which is the interest earned on the interest you’ve already earned. Over time, this can lead to significant growth in your FMP investment.

Potential to Outperform Inflation

Over time, inflation can reduce the purchasing power of your money. Investing in stocks can help you stay ahead by providing potential returns that outpace inflation. This can help you maintain your purchasing power and grow your wealth over time.

Potential to Participate in the Growth of Companies

By investing in stocks, you have the potential to participate in the growth of companies and reap the benefits of their success. For example, if a company performs well, its stock price may increase, leading to a higher return for you as an investor.

Liquidity

Investing in stocks offers a high degree of liquidity. This means you can sell your stocks quickly and easily when you need the money. This is a significant advantage compared to other FMP investments such as real estate, which can take longer to sell.

Did You Know?

MPs are taxed as debt funds, with a tax rate of 20% on long-term capital gains, and 30% on short-term capital gains.

Opportunity for Long-Term Growth

Finally, investing in stocks provides the opportunity for long-term growth. You can take advantage of the potential for higher returns and compound interest by holding stocks for an extended period. This can help you achieve your financial goals and build a strong financial future.

Conclusion

Fixed maturity plans offer a low-risk investment option with guaranteed returns and tax benefits. They are ideal for risk-averse investors who want to diversify their portfolios and receive a steady and predictable income stream. Before investing in FMPs, it is important to research and consider your financial goals, risk tolerance, and investment timeline.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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