Are Fixed Maturity Plans (FMPs) Right For Your Retirement Portfolio?

By BankBazaar | September 3, 2018

Here’s everything you need to know about FMPs before investing in them as a part of your retirement planning.

Are Fixed Maturity Plans (FMPs) Right For Your Retirement Portfolio?

Have you started planning for your retirement yet? Hey, don’t ignore now! This is important. After working so hard your entire life, you deserve to make the most of your sunset years. But for that it’s necessary that you start saving for your retirement already.

Additional Reading: 5 Ways To Make The Most Of Your Retirement Corpus

Even if you live pay check to pay check, you need to make efforts to save for your retirement. It might be slightly difficult, but it is doable. Here are some quick tips that can help:

  • Save when you can: Since you’re a little tight on the financial front, aim at saving when you can. For instance, if you get a festival bonus at work or some extra bucks from any other source, put it in your retirement fund.
  • Make the most of what you have: It won’t be easy, but make a conscious effort towards living the best you can within limited resources.
  • Look for an investment option that suits you: Depending on your financial position and future goals, find an investment tool that will help you meet your requirements.

Investing in the right avenues is important especially when you’re stocking up for your retirement. And Fixed Maturity Plans or FMPs make a great investment option. But is it right for you? Let’s find out.

What Are FMPs?

Debt schemes where the corpus is usually invested in fixed-income securities are called FMPs or Fixed Maturity Plans. The investment tenure can vary from one month to three years.

What Is The Main Advantage Of Investing in FMPs?

If you’re not sure about investing in FMPs, here’s something that will change your mind. The main advantage of investing here is that you get to enjoy amazing tax benefits. The income you generate from FMP investments exceeding three years attract great tax benefits. How? The returns that you earn on FMPs longer than three years get considered as Long Term Capital Gains (LTCG). Therefore, they are taxed at 20% with indexation.

Additional Reading: 9 Golden Rules Of Retirement Planning

Factors To Keep In Mind Before Investing In FMPs For Retirement Planning

When it comes to planning your retirement, it’s better to look for a way that can help you save more than the others. Here are factors you need to understand and keep in mind before investing in FMPs for retirement planning.

The Risk Involved

Like most other investment options, FMPs come with their share of risks. Being a closed-end investment instrument, they are prone to credit, market and liquidity risks. Two of the most crucial risks involved in FMPs are credit and interest rate.

Additional Reading: All You Need To Know About Fixed Maturity Plans

The Liquidity Factor

Since FMPs have a pre-fixed maturity date, the liquidity factor is missing. In simple words the AMC is not obliged to buy the units back during the tenure. If you plan to break the investment before time, you can do it through the stock exchange. The situation is that there is very little demand for FMPs and hence it is unlikely to find a buyer. That way, for emergencies, you can invest in other instruments that don’t charge you for a premature withdrawal. And your FMPs will be reserved only for your retirement.

If FMPs sound like an option that suits your investment needs, you must give them a try. However, if you want to explore more investment options, go ahead and click the link below.

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