The Hindu Business Line : Fixed maturity plans' yields on the decline

Kolkata June 15 Indicative yields of fixed maturity plans are going down rapidly, a marked change from the highs that were making headlines till recently.

A couple of FMPs that have closed earlier this week carried indicative yields in the range of 9.3-9.8 per cent, depending on whether you are a retail investor or an institutional one. And sources say yields, if the trend continues, are set to go down further - already a little less than 9 per cent is being bandied about.

The FMPs in question - both are UTI Mutual funds - are 396-day plans, the minimum investments being Rs 10,000 and Rs 1 crore for retail and institution respectively. Each had an exit load of 2 per cent - which were to be charged if an investor pulled out before 365 days.

The softening of yields, say intermediaries, is generally relegating FMPs on the margins, their position being usurped by fixed deposits offered by banks. This has been evident for some time, they point out, while referring to some of the FMPs that have been launched in recent times.

Among the more recent cases is Lotus India MF's 375-day product, which has an indicative yield of 9.25 per cent, notes distribution firm SKP Securities. This will close for subscription on June 19, and an investor who wishes to exit before 361 days will need to shell out a 2 per cent load.

Superior options

FMPs, when compared to bank deposits, have been positioned as superior options. Deposits, nevertheless, have received a shot-in-the-arm, thanks to recent rate hikes. Banks have been actively promoting their deposit products in the context of the latest trends on the rates front. The probable FMP yields scenario will only boost their case, investment circles suggest.

Despite all this, fund sources still feel fixed-maturity products will not lose their relevance with some quarters. As Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI MF, said, FMPs will retain part of their appeal, courtesy the tax-efficiency they offer. Income from bank deposits is taxable and attracts the marginal rate in line with an investor's personal tax bracket, he mentioned.

Higher yield in March

The latest scenario is far removed from the one that was evident in March (the last week of which saw a host of FMPs closing for subscription), when many FMPs had indicative yields in the 10.5-11.25 range. March 28 in particular was an important date insofar as FMP closures were concerned.

During that phase, fund houses were actively introducing higher yielding options, rending the FMP segment very buoyant. Big-ticket investors, among others, found the yields quite attractive.

That short-term income products have been gaining significance in the funds universe is evident from recent figures dished out by the Association of Mutual Funds in India. AMFI numbers related to the January-March quarter reveal that 234 close-end schemes contribute to the `Income' category, compared to 133 open-end schemes. The figures for the corresponding quarter of the previous year were 112 and 139 respectively.

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