FMP is unclear to investors: Our Online Survey Results

Moneylife’s online survey on FMP shows that 25% of the respondents do not invest in FMP. Those who are aware of the tax benefits and decent returns do not shy away from FMPs. What stops others? Lack of clarity and dearth of reliable advice is to blame

Moneylife online survey on fixed maturity plans (FMPs) received 372 responses. At first glance, the survey shows that 25% respondents do not invest in FMPs. If you do not have tax liability, or are in 10% tax bracket, it is better to avoid FMPs. Some 10% of respondents have, rightly, given this as the reason for not investing in FMPs. The survey, and emails received, showed that although people are interested in FMPs, they have to grapple with lack of reliable advice in choosing FMPs (20%).

People are looking for indicative returns and portfolio details (32%), but mutual fund companies are not allowed to declare these. Investment details are known only after the launch of FMPs. Moneylife’s Cover Story will serve as a guide for your FMP investment. March is the peak season for offers of FMPs. For the first time, backed by comprehensive analysis of data, not in public domain, we present an FMP guide to invest, calculate returns and ways to ensure that tax is saved by double indexation.

Some 22% of the respondents had 0%-5% of their debt portfolio invested in FMPs, while 12% respondents had invested 5%-10% in FMPs. Their main reasons for investing in FMPs are: returns are higher than bank FDs (36%) and they save tax on the returns (36%). One out of 10 respondents was not sure about how FMPs save tax.

Some 17% of the respondents are worried about the safety of capital, which is understandable, considering that an FMP is not as safe as an FD from scheduled commercial banks. One out of 10 respondents trust only bank FDs. A good 44%, rightly, said that possible returns on FMPs can be 8% to 10%. Investors avoid guidance from advisors while purchasing FMPs; they rely on their own research (28%).

7 years ago
The survey clearly shows lack of information, clarity how it works for tax savings and since there are uncountable MFs and FMP customers are confused, hesitant to invest in FMPs as Mostly its ones hard earned money and customers look out for safety and growth of their funds with assured returns on investment. Hence if more systematic steps taken to educate public and provide guidance w.r.t. proper FMP Options / MF options without heavy fees etc. I'm sure it will definately make an impact and more people will move out from the FD bracket and invest wisely in FMPs MFs. Same is with stocks. If people can invest and rest assured their money will grow systematically then they will start process of diversified investing in above instruments. Pl. provide honest and specific guidance to customers which will help and go a long way in future making public move away from FDs and get convinced their money will grow multiple times and tell them specifically how. Govt. agencies to guide public. Clarity w.r.t. growth of funds is a MUST. There should be no ambiguity. Just as FDs say in e.g. 1 Year your money invested will become exactly Rs.... same way FMPs too should specify rates and final maturity amts. This will instill guarantee and growth of investments. My views. correct me if I am wrong.
Suiketu Shah
8 years ago
The entire MF rules and regulations have got so complex and controversial (in attempt to safeguard MF brokers) that it is inevitably dying due to poor leadership of the rule makers for the industry.
8 years ago
In FMPs, Mutual funds hold fixed deposits till maturity and pass on interest income as capital gains to investors(?). . .

FMPs are a refined version of dividend stripping & against the very spirit of mutual funds investing.
Replied to Nilesh KAMERKAR comment 8 years ago
Not clear about your point. FMPs have dividend and growth option. Yes, FMP will hold the securities (CD, CP, bonds/NCD) till maturity.
Replied to raj comment 8 years ago
1) Request you to please make a list of fundamental characteristics / attributes of mutual funds and then compare those with FMPs. - You shall agree, FMPs are wolves in sheep's clothing

2) Returns from Mutual funds are classified as Capital Gains because they are unpredictable and arise from gains on capital.

3) There is no Capital gain generated by FMPs whatsoever. Returns are only by way of interest recd on maturity of time deposits

Therefore, FMPs are simply exploiting this loophole by passing on interest earned as Capital Gains. Dividend or Growth option does not matter.

Trust this clarifies.
Replied to Nilesh KAMERKAR comment 8 years ago
1. See no reason to make such comparison. 2. Do debt mutual funds invest in instruments different than FMP? 3. If debt mutual funds are investing in same instruments as FMP, why would FMP not consider it as capital gains and debt mutual funds are ok to consider it? 4. If Taxman does not have any problem in considering capital gains instead of interest for FMP, your point is irrelevant. 5. Closed ended FMP starting and ending at same time takes away the uncertainties associated with entering and exiting at wrong time in debt mutual fund. Please read Moneylife FMP cover story for more details:
Krishnamurthy Kakaraparthy
8 years ago
FDs provide regular (Monthly/Quarterly) income. FMPs do not. Debt funds, with similar tax benefits, provide liquidity which FMPs do not have.
K Krishnamurthy
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