FMPs or Fixed Maturity Plans are debt mutual funds which are close ended and have typical maturity period ranging from 30 days to 3 years or more.
BENEFITS: The best part of any FMP is, it scores high on tax advantage when they are compared to similar instruments like Fixed Deposits.
For the Short Term Capital Gains, the income from FMPs as in the case of any debt oriented fund is added to the annual income and the taxation is done as income tax.
In case of the Long Term Capital Gains, the income from FMPs, as in the case of all debt oriented funds, is taxed as the higher among the two – 10% without indexation and 20% with indexation.
RISK: FMPs may invest in commercial papers of a variety of businesses. Thus an over ambitious FMP may make aggressive investment in businesses that have lower CRISIL/ ICRA ratings thereby exposing the investment to risks.