If you like the certainty of FDs—but want better tax treatment and flexibility—FMPs might be your fit.

When it comes to investing for short-to-medium-term goals, many investors gravitate toward fixed deposits due to their safety and predictable returns.

But what if you could get similar predictability—along with better tax efficiency and market-linked potential—without the rigidity of traditional FDs?

Enter the world of Fixed Maturity Plans (FMPs).

Let’s break down what FMPs are, how they work, and when they make sense in a balanced, goal-oriented portfolio.

1. What Are Fixed Maturity Plans (FMPs)?

FMPs are closed-ended debt mutual funds with a fixed maturity period—usually ranging from 1 to 5 years.

• You invest during the NFO (New Fund Offer) window

• Your money is locked in till maturity

• The fund invests in debt instruments (corporate bonds, government securities, money market instruments) that mature in line with the fund’s term

2. Why FMPs Exist: The Problem They Solve

Most open-ended debt funds are subject to interest rate fluctuations and may see volatility in short periods.

FMPs are structured to eliminate reinvestment risk by holding instruments till maturity, giving investors:

✅ Predictable return outcomes

✅ Defined time horizon

✅ Reduced sensitivity to market movement

They are particularly useful in rising interest rate environments, where you can lock in higher yields for the next few years.

3. Key Benefits of FMPs

✅ A. Predictability

Since fund managers buy instruments that mature alongside the fund, there’s minimal volatility if held till maturity.

✅ B. Tax Efficiency

Historically, FMPs held for over 3 years benefited from indexation, which significantly reduced tax on capital gains.

⚠️ However, as of FY2023, they’re now taxed as per slab rate, just like other debt funds.

Still, they often beat FDs post-tax for those in higher tax brackets when interest rates are favorable.

✅ C. Low Expense Ratio

FMPs typically have low costs compared to actively managed debt funds.

✅ D. Ideal for Goal-Based Planning

Perfect for people with specific timelines—e.g., paying for education, buying a car, or preserving a retirement corpus

4. FMPs vs Fixed Deposits: How They Compare

5. When Should You Consider FMPs?

✅ You have a defined investment horizon (say, 3 years)

✅ You want better tax efficiency (compared to FDs if in a high slab)

✅ You seek predictability with slightly better return potential

✅ You don’t need liquidity during the tenure

✅ You want to diversify away from open-ended volatility in debt funds

6. Risks and Limitations

🔸 No premature redemption—you must stay invested till maturity

🔸 Credit risk—returns are subject to the quality of bonds in the portfolio

🔸 No guaranteed return—though predictability is high if held till end

🔸 Limited entry window—you can invest only during the NFO period

FMPs are not for you if you might need early access or are unsure about locking money for a fixed term.

7. Best Practices for Using FMPs

🟢 Match the FMP tenure with your financial goal timeline

🟢 Choose FMPs from reputable AMCs with history of low credit risk exposure

🟢 Don’t compare returns directly with equity or hybrid funds—they serve different purposes

🟢 If you’re in a higher tax bracket, FMPs can still edge out FDs (net of tax)

TL;DR — Too Long; Didn’t Read

• Fixed Maturity Plans (FMPs) are closed-ended debt funds with predictable outcomes and fixed timelines

• Ideal for conservative investors with 3–5 year goals

• Offer better post-tax returns than FDs for some investors, even under new tax rules

• Locked-in until maturity—plan your liquidity needs accordingly

• Perfect for building a stable debt component in your overall portfolio

📩 Considering FMPs for your short- to mid-term goals? Let’s review the latest NFOs and match the right fund to your horizon and income needs.