FMPs attractive as short-term investment

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There has been a lot of volatility in the markets off late and investors are looking to take some money out of that volatility and park it in relatively safer avenues, analysts said. FMPs seem to be the flavour of the last two-three months, they added. 110 new FMPs have come about and have raised about Rs 30,000 crore.

 

FMP usually invest in fixed return and short-term debt instruments like government bonds, and a lot of money market instruments like commercial paper and corporate debt. They are usually compared to fixed deposits, primarily because they give about the same return. However, FMPs are slightly riskier but they enjoy a certain tax benefit. Dividend is tax free in the hands of an individual investor and is a huge benefit considering that a mutual fund is taxed at about 14-15% whereas a one-year fixed deposit is taxed at 30%.

 

The one-month return for FMPs has been around 0.52%, three month at about 2.5%, and one-year at around 7.11%. If you compare it with other debt categories like gilt short-term funds, the one-month returns has been 0.84%, three-month returns at 3.13%, and one-year at 9.08%. Hybrid debt on account of the equity element has outperformed both these giving a one-year return of 12.3%.

 

Some of the key FMP funds that have done well include Principal PNB Fixed Duration fund. It has given a one-month return of 0.84% and a one-year return of 10.81%. Its key holdings include some bonds and NCDs. It also has about 24% holding in securitised debt.

 

Birla FMP is another good FMP fund. It has a one-year return of about 9.3% and a one-month return of about 0.74%. The average maturity on this fund is three-months, whereas HSBC Fixed Term Series has an average maturity of a year. If you look at its yearly-returns, it is pretty decent at about 8%.

 

There is this constant tussle whether to invest in fixed deposits or FMPs, analysts said. At present, FMPs that are on offer are DSP Merrill Lynch Fixed Term Plan - Series 3 F, Sundaram BNP Paribas Fixed Term Plan Series XXXII, and ING FMP Series Fixed Plan.

 

Investors looking at parking their money in the short-term can opt for this option, analysts said. But investors need to be relatively risk-averse and feel that interest rates will improve in the future. FMPs range from 15 days to even 5 years, so choose your option with care, analysts added.

 

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