Are Fixed Maturity Plans Finally a Sound Investment?

Lack of viable deposit insurance and the absence of any premature withdrawal options have rendered fixed maturity plans an unpopular investment option for quite a while now, but the recent turbulence in the equity and debt markets, has substantially increased the desirability of short-term, fixed maturity plans that invest in debt or money market instruments.

As a result, several large fund houses, including IDBI, Prudential and L&T have begun to file documents for a number of brand-new fixed maturity plans with a duration of one or two years each.

For the most part, this is because it’s now possible to at least estimate the return that such schemes will yield and the predicted yields often significantly outweigh the perceived risks of investing in close-ended debt schemes that actively prohibit premature withdrawal. In fact, according to the Financial Observer, some of the new fixed maturity plans are even expected to yield an annual return of up to 10.88%.

Are Fixed Maturity Plans Finally a Sound Investment?

The rising popularity of fixed maturity plans can also, in some respects, be attributed to rising awareness of their tax efficiency. Where more traditionally sound fixed rate investment options like FDs are taxed according to the standard rates of income tax, fixed maturity plans with a tenure of over one year are taxed at a fixed rate of 10% without indexation or 20% with indexation, and financial papers are beginning to pick up on all the benefits that such promising tax figures entail; leading to a sudden surge of interest in such potentially lucrative holdings.

Just because there’s a lot of hype surrounding fixed maturity plans doesn’t necessarily mean that they’re a particularly good investment though. While it’s true that their promising tax efficiency and their connection to a steadily inflating market could yield potentially lucrative returns, the fact remains that investing in them means locking your finances in an investment that you can’t withdraw from, blocking you from making other, potentially more lucrative investments for the promise of financial security that doesn’t quite match up to that offered by standard fixed deposits.

More to the point, there are plenty of other tax efficient investment options that don’t require such broad speculation on the continued rise of interest rates, or investment in debt or money market instruments, so before you bank on a fixed maturity plan, make sure you explore your options carefully – they’re sudden surge in popularity doesn’t necessarily make them a sound investment.


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