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Fixed Maturity Plans

What is a Fixed Maturity Plan (FMP)?

Fixed Maturity Plan (FMP) is a fixed tenure mutual fund scheme that invests its corpus in debt instruments maturing in line with the tenure of the scheme. The tenure of an FMP can vary between a few months to a few years.

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Who should invest in a FMP?

FMPs are ideal for investors who are keen to stay invested for the tenure of the scheme and seeking an alternate investment option which aims to provide better post-tax returns with minimal interest rate risk

Where does a FMP invest its corpus?

FMPs invest its funds in various fixed interest-bearing securities maturing in line with the maturity of the scheme. Generally, FMPs generate returns that are equivalent to the yield of securities with similar maturities prevailing on the date of the investment.

What are the benefits of investing in FMP?

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Minimal Interest Rate risk

FMPs are least exposed to interest rate risk because the fund manager will normally hold the instruments till their maturity. Also, FMPs generally invest in securities with higher credit quality so that credit and liquidity risks are minimized.

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Low cost

As the investments are made in line with the maturity of the fund, there is no buying or selling securities in the scheme. This reduces the costs of the scheme.

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Low Tax

Investments made in an FMP above a certain period allow an investor to take advantage of indexation benefit which can result in lower tax on their gains to the extent of tax saved on the investment. Read More

What is Indexation?

Adjusting the cost of capital asset (in this case your investment in FMP) by incorporating the impact of inflation, on the amount you have invested, during the period of holding of investment i.e. the time (Financial Years) between your investment and maturity of the FMP.

If you invest in a 1857-day FMP on 14th February, 2016, then it will mature on 16th March, 2021, hence you can index the cost of your investment using the CII (Cost Inflation Index) values from FY 2017-18 and FY 2020-21 to lower the tax impact.

How Indexation benefits a FMP vs. Fixed Deposit

Particulars Fixed Maturity Plan
(1200 days)		 Fixed Deposit
(1200 days)
Amount Invested (A) Rs.1,00,000 Rs.1,00,000
Investment Duration (in days) (B) 1,616 1,616
Investment Yield^ (C) 5.30% 5.30%
Maturity Value(D)= (A)x(1+C)^(B/365) (FMP) Rs.1,25,690 Rs.1,26,252
Initial Cost of Investment (E) Rs.1,00,000 Rs.1,00,000
Indexed Cost of Investment* (F)=(A/240)x280 Rs.1,14,015 NA
Taxable Capital Gains (G)=D-F (FMP), D-A (Fixed Deposit) Rs.11,674 Rs.26,252
Applicable Tax Rate #(H) 20.80% 31.20%
Amount of Tax (I)=GxH Rs.2,428 Rs.8,191
Maturity Value (Post Tax) (J)= D-I Rs.1,23,261 Rs.1,18,061
3 Year Absolute Returns (Post Tax) (K)=(J-A)/A 23.26% 18.06%
CAGR Investment Yield (Post Tax)(L)=((J/A)^(1/(B/365))-1)x100 4.84% 3.82%

Note :

Investment yield on FMP and that of term deposit have been considered at the same rate to demonstrate tax efficiency borne out of indexation. Yield (compounded quarterly) on term deposit has been considered as per the current rate available in www.sbi.co.in for Senior Citizens - Retail Domestic Term Deposits (3 years to less than 5 years) w.e.f. January 08, 2021. Actual returns may vary based upon prevalent market conditions and rates. Please consult your tax advisor for actual tax implications. # For Term Deposit - Assuming a retail investor (having an income below Rs. 50 lakhs) falling in the highest tax bracket & including 4% Health and Education cess. For FMP – 20% with indexation & including 4% Health and Education cess. *Cost Inflation Index (CII) is based on the year of investment and that of the year of redemption i.e., 2016-17(264) and 2020-21(301) respectively and the rates used are actual rates prescribed by Income Tax authorities for these years. The above is only an example to show the method of calculating capital gain tax payable by an investor with or without indexation and should not be construed to be an investment or tax advice of any nature. There is no assurance or guarantee of future performance of any FMP under SBI Mutual Fund. The calculation is based on prevailing tax laws. Please consult your tax/financial advisor before taking any investment decision.

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