The Hindu Business Line : Fixed maturity plans gaining in popularity

FIXED maturity plans are fast staging a comeback in the realm of mutual funds, thanks to the increasing tendency of asset management companies to introduce products with pre-set tenures. A number of FMPs have been lined up for launch by various fund houses.

FMPs, which essentially invest in fixed income instruments and hold them to maturity, try to manage interest rate risk - a characteristic that is said to appeal to investors looking for relatively safe options.

The fact that MFs are geared to work out more such proposals indicate their growing significance in the market laden with competing products, sources in the fund management industry claim.

Among the players that have readied fixed tenure schemes are Deutsche MF, Standard Chartered MF and Birla MF.

Mr Naval Bir Kumar, who heads StanChart MF, says the concept of FMPs has its own merits. "FMPs may well be important for those who wish to fine-tune their asset allocation," he said, when asked why investors would forsake equity products to go in for fixed-duration alternatives.

Some of the fund houses are currently trying hard to convince the market about FMPs. Mr Binay Chandgothia, Head - Fixed Income and Deputy CIO, Principal MF, feels fixed-maturity schemes will serve investors well, especially if they remain committed till the end.

"It may be a good idea for longer duration FMPs to allocate a part of their assets to equities," he mentioned.

The same sentiment has been expressed by Franklin Templeton as well. FT Fixed Tenure Fund - 60 Month Plan actually has a 30 per cent equity exposure ceiling - a provision that is expected to boost overall returns.

This, notes Mr Ravi Mehrotra, President, Franklin Templeton, combines stability (from high quality fixed income investments) and growth potential from stocks.

As for liquidity, investors may withdraw in part or full every six months for a pre-determined period of seven days, subject to exit loads.

Like the others that had mooted FMPs in the past, Deutsche MF too underscores the fact that its scheme will generate income by allocating to quality fixed and floating-rate securities. Incidentally, its latest proposal, Deutsche Fixed Term Fund (Series 2), has just been sent to SEBI for clearance.

Birla MF's most recent offer has come bundled as a series of schemes, with the respective plans in each series aiming at returns similar to the current yield of the portfolio.

Its `Series 1' for instance has a 18-month plan. The idea, the fund house has explained, is to "insulate the investors from interest rate volatility if they remain invested till maturity". Intermediaries are also keen to talk about FMPs to customers, it is pointed out.

SKP Securities, a distributor in Kolkata, maintains longer-term products will attract those who actively look at GOI bonds.

The investor in such bonds is "restricted to eight per cent gross return and 5.33 per cent return post-tax at the highest tax slab," SKP has informed clients.

It has nevertheless stated that limited liquidity remains a concern for the FMP investor.

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