Moneylife’s online survey on FMP shows that 25% of the respondents do not invest in FMP. Those who are aware of the tax benefits and decent returns do not shy away from FMPs. What stops others? Lack of clarity and dearth of reliable advice is to blame
Moneylife online survey on fixed maturity plans (FMPs) received 372 responses. At first glance, the survey shows that 25% respondents do not invest in FMPs. If you do not have tax liability, or are in 10% tax bracket, it is better to avoid FMPs. Some 10% of respondents have, rightly, given this as the reason for not investing in FMPs. The survey, and emails received, showed that although people are interested in FMPs, they have to grapple with lack of reliable advice in choosing FMPs (20%).
People are looking for indicative returns and portfolio details (32%), but mutual fund companies are not allowed to declare these. Investment details are known only after the launch of FMPs. Moneylife’s Cover Story will serve as a guide for your FMP investment. March is the peak season for offers of FMPs. For the first time, backed by comprehensive analysis of data, not in public domain, we present an FMP guide to invest, calculate returns and ways to ensure that tax is saved by double indexation.
Some 22% of the respondents had 0%-5% of their debt portfolio invested in FMPs, while 12% respondents had invested 5%-10% in FMPs. Their main reasons for investing in FMPs are: returns are higher than bank FDs (36%) and they save tax on the returns (36%). One out of 10 respondents was not sure about how FMPs save tax.
Some 17% of the respondents are worried about the safety of capital, which is understandable, considering that an FMP is not as safe as an FD from scheduled commercial banks. One out of 10 respondents trust only bank FDs. A good 44%, rightly, said that possible returns on FMPs can be 8% to 10%. Investors avoid guidance from advisors while purchasing FMPs; they rely on their own research (28%).
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This means access to other articles (outside the subscription period) are not included.
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FMPs are a refined version of dividend stripping & against the very spirit of mutual funds investing.
2) Returns from Mutual funds are classified as Capital Gains because they are unpredictable and arise from gains on capital.
3) There is no Capital gain generated by FMPs whatsoever. Returns are only by way of interest recd on maturity of time deposits
Therefore, FMPs are simply exploiting this loophole by passing on interest earned as Capital Gains. Dividend or Growth option does not matter.
Trust this clarifies.
K Krishnamurthy