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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.

Dinesh Jain

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Disclaimer

Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice. The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) 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.

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Alpha (a) is a term used in investing to describe an investment strategy’s ability to beat the market.


Alpha is thus also often referred to as excess return or the abnormal rate of return in relation to a benchmark, when adjusted for risk. Essentially, it means doing better than the crowd without taking disproportionate risk.

Information Edge

Collecting superior information

Analysts and portfolio managers strive to collect superior information about the business and the management of the company. They try to generate superior earnings forecast and the balance strength of the company and the industry, thereby trying to 'beat the market' on information edge. This is an important source of alpha for an investor. However, over the years, retaining the information edge has become more difficult and expensive. With a whole lot of investors trying to collect superior information, how can an investor be sure to continuously have accurate and material information about the companies, ahead of others, all the time?

Quantitative Edge

Processing information better

Even if you don't have material information earlier than the crowd, you can still generate better outcomes if you are able to process this information better. Investors develop models and algorithms with enhanced predictive powers to forecast the next move. Fund managers who invest based on some pure formal analytical models are quantitative managers. Here, the goal is to try and beat other investors based on the sophistication of procedures or analytics. The analytical edge can be quite useful until it gets copied by many, and then it may stop generating superior returns.

Behavioural Edge

Exploiting behavioural biases

As the name suggests, this edge is achieved by superior behaviour in reacting to the inputs available to maximise alpha. Modern finance assumes people behave with extreme rationality. However, researchers in behavioural finance have shown that this is not true. Moreover, these deviations from rationality are often systematic. Behavioural managers try to exploit situations where securities are mispriced by the market because of behavioural factors. At Bajaj Finserv AMC, we endeavour to combine the best of these edges.