Bank fixed deposit are massively popular and are the preferred investment option of millions. But if you have already build a corpus by investing in FDs and are looking for other safe investment avenues with better yield then you may try your luck in Fixed maturity schemes. But what are fixed maturity plans? How are they better than FDs? Let’s try and understand.
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Fixed maturity plans are a form of alternative investment than the conventional FD investment. These are close-ended mutual fund scheme that allows you to invest for a fixed tenure and generate better returns compared to a fixed deposit. The money pooled from investors is invested in fixed income securities that mature before the scheme matures. If you are an investor looking for less risky investment option then FMPs are the best investment tools for you as it gives you an attractive yield along with safety. It comes with other benefits as well. For example, if you want to exit the scheme before its maturity, you can easily sell your scheme in the stock exchange.
See Also: Benefits of Fixed Deposit in India
There are basic similarities between fixed maturity plans and an FD. But the two investments instruments also have some differences.
Both FDs and FMPs are instruments that offer safe returns and provide capital protection to investors. You must stay invested for a fixed tenure in case you are investing in any of these instruments. Both the instruments offer you the flexibility to choose the investment period based on your convenience.
But the returns on FMP are much higher when compared to Bank FDs. The FMPs gives indicative returns as opposed to the guaranteed returns promised by the fixed deposit. So the returns you get by investing in an FMP are indicative and not assured, unlike FD.
Additionally, the value of your FMP is reflected by the NAV of the fund. You can know the NAV of your investment daily. This makes these instruments riskier than FDs. The fluctuating interest rate affects the NAV of fixed maturity plans thus making it a little riskier than bank FDs.
The fund managers apply a buy and hold strategy for managing fixed maturity plans. Since these are closed-ended funds they invest in instruments that match the tenure of the FMP in terms of asset maturity. Fixed maturity plans do not involve the buying and selling of debt securities like debt funds. This strategy allows the expense ratio to below as compared to the debt funds.
See Also: How To Choose the Best FD?
See Also: Best Fixed Deposits in India (2019)
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