What are fixed maturity plans?

Fixed Maturity Plans (FMPs) offer investors a combination of features. But what exactly is the fixed maturity plans meaning and how do they work? Let’s check out the fixed maturity plans definition and assess if these instruments are suitable for you.

Fixed maturity plans definition

Fixed maturity plans, often abbreviated as FMPs, are close-ended debt funds offered by mutual fund companies. These plans come with a predetermined maturity date, typically ranging from a few months to five years. Unlike traditional open-ended mutual funds, FMPs have a fixed investment horizon, providing investors with clarity regarding the duration of their investment.

The primary objective of fixed maturity plans is to generate a relatively stable return potential by investing in a portfolio of fixed-income securities such as government bonds, corporate bonds, and other debt and money market instruments. Fixed Maturity Plans invest in instruments maturing on or before the maturity date of the FMP. The portfolio composition is carefully selected by fund managers to optimise the return potential while maintaining a suitable level of risk in line with the fund's investment strategy.

Additionally, fixed maturity plans offer a relatively stable return potential compared to equity-oriented instruments. The stability makes them suitable for investors looking to mitigate impact on capital while generating a consistent income potential over a specific time frame.

However, it's important to note that fixed maturity plans are close-ended funds, meaning that investors can only invest during the initial offer period. After the offer period closes, the fund is closed for new investments, and investors can only redeem their units upon maturity. FMPs are listed on stock exchanges.

In conclusion, fixed maturity plans are close-ended debt funds with a fixed investment horizon and a portfolio of fixed-income securities. They offer investors a relatively stable return potential through interest income and a set investment horizon. Thus, FMPs can be a suitable option for investors seeking predictable income and mitigated impact on capital invested over a specified horizon. However, investors should carefully evaluate their investment objectives and consult a financial advisor before investing in Fixed Maturity Plans.

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