Four Advantages of Investing in FMP
Savings form a crucial part of everyone’s life. You may save to realize a distant aspiration or for paying of certain uncalled expenses. The reason may be any, but the objective to do savings lies persistent in the mind of every bread winner.
To cater to the needs of several such savers, financial world has offered numerous investment instruments. The basic instrument of savings is bank account followed by term deposits. However, what if you look forward to gain substantial gains over the saving corpus?
For such ambitious investors who plan to mitigate investment risk, mutual fund companies provide fixed maturity plans or FMP.
What is an FMP?
A fixed maturity plan is a close-ended debt instrument based mutual fund scheme. Since it is debt based, the invested amount is locked-in for a particular period of time. For instance, if you purchase an FMP plan for duration of 1 year, then the underlying instruments will also have a lock-in period of a year. This completely eliminates re-investment risk and assures promised returns.
Key benefits of investing in FMP
- Better Returns
Any FMP will offer a return rate of 9.25 to 9.5% annually. On the contrary, any term deposit or secure fixed deposit will never offer such return rate. Thus, FMP is preferable.
- Tax Free
All FMPs are void of tax. On the contrary debt funds or fixed deposits are taxed under the Income Tax Act of India. Thus, the returns earned over your savings do not get deducted.
- Minimum Risk
FMP primarily invest in debt instruments such as Government bonds, certificate of deposits, and money market instruments. All these vehicles carry very little risk and deliver the promised returns. Thus, risk is minimized.
- Double Indexation
Financial experts know that investments done during the end of financial year (i.e. in the month of March) are able to avail double indexation benefit. FMPs allow such facility. Thus, you can get additional gain over the invested sum.