Planning for a future expense involves deciding both where to invest and when you will need the money. A fixed maturity plan gives you a stated end date, which you can compare with your payment timeline. That date does not tell you how much you will receive. FMP returns depend on the investments held by the scheme and its expenses.
Table of Contents
What is a fixed maturity plan in mutual fund investing?
A fixed maturity plan mutual fund is a closed-ended debt scheme with a predetermined maturity date. It builds a portfolio of debt and money market instruments whose maturities are aligned with the scheme’s tenure. The FMPs full form is Fixed Maturity Plans; a single plan is called an FMP.
You can subscribe through the fund house during its New Fund Offer, or NFO. Once the offer closes, the scheme does not accept ongoing subscriptions or provide routine redemption before maturity. Its listed units can be traded on a stock exchange, provided buyers and sellers are available.
Source: AMFI, “Categorization of Mutual Fund Schemes”, FMP guidance.
Key Takeaways
- FMPs are closed-ended debt mutual funds with a predetermined maturity date.
- Their portfolios are built around securities whose maturities fit the scheme’s tenure.
- A fixed maturity date does not guarantee returns or repayment of invested capital.
- Selling before maturity depends on exchange liquidity and the price available.
- Tax treatment depends on the acquisition date and the scheme’s tax classification.
How do fixed maturity plans work?
An FMP moves from subscription to maturity through the following stages:
- The NFO opens: Scheme documents explain the investment period, portfolio mandate and application requirements.
- Units are allotted: Investors apply during the offer period and receive units against their investment.
- The portfolio is built: The fund invests in permitted debt and money market instruments, such as bonds, Treasury bills, certificates of deposit and commercial paper.
- The investments are managed: Income, changes in security values and expenses affect the fund’s net asset value, or NAV.
- The scheme matures: Units are redeemed and proceeds are paid under the scheme’s terms.
Check the Scheme Information Document for the permitted investments, allocation limits and maturity arrangements.
Sources: AMFI, “Types of Mutual Fund Schemes” and debt-scheme guidance; SEBI Investor, “Understanding the Riskometer”.
A fixed maturity plan example
Suppose you invest ₹1,00,000 in a hypothetical three-year FMP at an allotment NAV of ₹10. For this calculation, assume the entire amount is allotted to units, excluding stamp duty and other applicable transaction levies. If the NAV at maturity is ₹11.20:
| Detail | Illustration |
| Amount allotted to units | ₹1,00,000 |
| Allotment NAV | ₹10.00 |
| Units allotted | 10,000 |
| Assumed maturity NAV | ₹11.20 |
| Maturity value before investor-level tax | ₹1,12,000 |
| Gain before investor-level tax | ₹12,000 |
The ₹12,000 is the total gain over three years. It is not an annual return. The assumed maturity NAV illustrates the calculation rather than predicting a payout.
The figures shown are for illustrative purpose only.
What affects fixed maturity plan returns?
Fixed maturity plan returns depend on what the portfolio earns and the costs it incurs:
- Investment income: Interest and other income received from the securities held.
- Credit quality: An issuer’s ability to repay, and changes in its creditworthiness, can affect investment value.
- Interest-rate movements: Changes in market rates can affect security prices and NAV during the scheme’s tenure.
- Expenses: Fund expenses reduce the return available to investors.
The interest rate on an individual security should not be read as the return you will receive from the fund.
Source: SEBI Investor, “Understanding the Riskometer”, covering debt-fund credit risk and sensitivity to interest rates.
What are the benefits and limitations of fixed maturity plans?
An FMP offers a defined investment timeline, but access before maturity needs particular consideration.
Benefits
The structure can help you plan and manage a debt investment:
- A stated end date: You can assess whether maturity falls before your planned expense.
- Professional management: The fund manages the portfolio, including investment selection and administration.
Risks and limitations
Before investing, consider what could affect the amount received or your ability to exit:
- Credit risk: An issuer may delay or fail to make a payment.
- NAV fluctuations: The value of securities can change during the investment period.
- Restricted early access: Routine redemption with the fund house is unavailable. An exchange sale requires a buyer, and the price can differ from NAV.
Sources: AMFI, FMP trading and redemption guidance; SEBI Investor, “Understanding the Riskometer”.
How are fixed maturity plans taxed?
For an FMP that qualifies as a Specified Mutual Fund, gains on units acquired on or after 1 April 2023 are treated as short-term capital gains, regardless of how long you hold them.
For resident individuals, these gains are generally taxed at the applicable slab rate, without indexation benefits. Surcharge and cess may also apply.
Section 76 of the Income-tax Act, 2025, includes funds investing more than 65% of their total proceeds in debt and money market instruments within the specified mutual fund definition. The percentage is measured using the annual average of daily closing figures.
Units acquired before 1 April 2023 need a separate assessment. Descriptions of indexation benefits under earlier rules should not be applied to a new FMP investment.
Source: Income Tax Department, Income-tax Act, 2025, Section 76.
The tax information in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.
Fixed maturity plans vs fixed deposits
An FMP and a bank fixed deposit can both have a stated tenure, but their returns and withdrawal arrangements differ:
| Factor | Fixed maturity plan | Bank fixed deposit |
| Structure | Closed-ended debt mutual fund | Bank deposit |
| Returns | Depend on portfolio performance and expenses | Agreed interest rate under deposit terms |
| Access before maturity | Exchange sale, subject to buyers and available prices | Premature withdrawal depends on deposit terms; reduced interest or penalties may apply |
| Deposit insurance | Not covered by DICGC | Eligible deposits at insured banks are covered within DICGC limits |
DICGC covers eligible deposits up to ₹5 lakh per depositor per bank, including principal and interest, held in the same right and capacity. The limit covers combined eligible deposits rather than each FD separately.
Sources: AMFI, closed-ended scheme guidance; RBI, term-deposit withdrawal guidance; DICGC, “A Guide to Deposit Insurance”.
How are FMPs different from target maturity funds?
FMPs are closed-ended. Target maturity debt index funds are open-ended schemes that track a specified debt index towards a target maturity date. An open-ended target maturity index fund allows subscriptions and redemptions under its terms. An FMP’s subscription window is limited to the NFO, with subsequent trading through the exchange. Neither structure assures a particular return.
Sources: SEBI, “Circular on Development of Passive Funds”; AMFI, open-ended and closed-ended scheme guidance.
Who should consider a fixed maturity plan?
An FMP may be worth assessing if you have a lump sum that you can leave invested until maturity and are comfortable with its debt-portfolio risks. Check the following before choosing:
- Payment timeline: Does the maturity date leave enough time for proceeds to reach your bank account?
- Access needs: Keep money for immediate or unexpected expenses separately accessible.
- Portfolio mandate: Review permitted securities, credit quality and issuer concentration.
- Risk and expenses: Read the latest Riskometer and expense disclosures.
- Tax outcome: Consider what you may retain after applicable tax.
Source: SEBI Investor, “Factors to Consider Before Investing”, applied to an FMP’s structure.
How to invest in fixed maturity plans
To invest through the fund house:
- Find an FMP with an open NFO.
- Review its maturity date, portfolio mandate, Riskometer and application terms.
- Complete or validate your KYC.
- Select an available plan and investment option.
- Submit the application and payment before the offer closes.
- Keep the allotment confirmation and account statements.
To buy or sell listed units after the NFO, you need units in demat form and the relevant stock-exchange trading arrangements.
Sources: AMFI, “Types of Mutual Fund Schemes” and “Myths and Facts About Mutual Funds”, demat guidance.
Conclusion
Fixed maturity plans give you a defined investment period, while returns depend on the debt portfolio’s performance and expenses. Understanding how a fixed maturity plan mutual fund works, how it is taxed and how limited early access can be helps you compare it with fixed deposits and target maturity funds. Before investing, consider fixed maturity plan returns after costs and taxes, and check that you can leave the money invested until the scheme matures.
FAQs
What is the full form of FMPs?
FMPs means Fixed Maturity Plans. A single scheme is called an FMP, or Fixed Maturity Plan.
Are fixed maturity plan returns guaranteed?
No. Returns depend on the portfolio’s income, repayment performance, valuations and expenses. A fixed maturity date does not guarantee the amount received.
Can I withdraw from an FMP before maturity?
Routine redemption with the fund house is unavailable before maturity. You may sell listed units on a stock exchange, subject to available buyers and the price offered.
Can I invest in an FMP through an SIP?
An ongoing SIP is generally unavailable because subscriptions through the fund house are limited to the NFO. Subsequent exchange purchases are separate transactions.
Do I need a demat account for an FMP?
Demat holding is generally optional when subscribing during the NFO, subject to scheme terms. It is required to trade units on a stock exchange.
Is an FMP better than an FD?
Neither is automatically better. Compare the FD’s agreed interest rate and withdrawal terms with the FMP’s market-linked returns, portfolio risks, taxation and limited early access.
Where can I find fixed maturity plans open for investment?
Check fund houses’ official NFO announcements. A listed FMP available for exchange trading is different from an NFO accepting subscriptions.
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