FMPs - is it good to invest in them ?

With short term interest rates of less than a year looking good, it is not only banks which are coming up with attractive one-year deposits. Mutual funds too have been launching a number of one year close-ended debt products called Fixed Maturity Plans (FMPs) that could offer attractive yields.

However, there is the catch. Despite higher risk compared with deposits, FMPs, which typically invest in debt instruments for a fixed period, be it money market instruments or government and corporate bonds, were seen a superior option to bank deposits, due to their lower tax incidence. This is set to change if the revised draft of Direct Tax Code (DTC) is to be adopted in its current form from April 2012. Here's a quick recap on what made FMPs superior to Fixed Deposits (FDs) so far and how investors have to be selective with FMPs from hereon, if they have to enjoy optimal post-tax returns.


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