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THE last few weeks of the financial year is usually a time when the mutual fund arena sees the entry of a large number of fixed maturity plans (FMPs) that seeks to mobilise investments from the investors. This is an instrument that can be relied upon to provide a specific kind of exposure that comes along with ease of operation and also simplicity. Here is a look at some of the ways in which the individual can gain from the overall position at this specific point of time.
Fixed maturity plans: These are mutual fund schemes that are of the nature of fixed deposits in the sense that they are in operation for a specific period of time. Once this time period is over, the mutual fund scheme will also come to an end and the amount will be returned to the investors based upon the net asset value (NAV) of the fund.
This allows the investors to ensure that they are able invest for the exact time period that they want and then get back their money.
The fund manager invests the amounts in such a manner that the debt instruments in the portfolio also mature on the date of the maturity, eliminating the existence of the interest rate risk in the entire investment. There are a host of such funds that come into the market at the end of the financial year, intending to tap the need of investors at this point of time.
Time period: There will be different time periods for which the FMPs will be launched and, hence, the investor has to select the period that suits their requirement. In some cases, there is a position where the liquidity for a specified period in the debt market is less, leading to a spike in returns for some type of particular instruments.
Thus, for example, if the short-term rates have spiked, mutual funds are likely to launch a lot of short-term FMPs to enable them to make the best use of the opportunities.
In other cases, it could be that there is the benefit of double indexation available due to the fact that the investment spills out in to a financial year that represents a two-year holding period for indexation benefits, while the actual holding period is just over a year. These are usually in the nature of slightly longer period of FMPs that range from 13 months to around 36 months.
Benefits: Since there are various benefits that can be utilised for different types of FMP investments, there is a need to look at how this can be utilised to the maximum extent possible.
Take a situation where there is a high return possible for short-term three month FMPs. Here, investors should see whether they have a chance to continue with the high returns for their money that they can maintain after this initial time period is over, if they invest elsewhere. If the reinvestment of the money might not be possible or the rates expected then are very low, there could be a position where the investor might actually prefer to lock in the money for a longer time period FMP , where the earnings potential might look a little low, but it will actually last for a longer time period.
There might also be some short-term chances, whereby, the investors can lock their money for the time period that they actually desire. When they have large amounts of funds present for this kind of short time period, which can even go to a few lakh of rupees, they should ensure that not much time is wasted on this area but the requirements are completed quickly.
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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
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Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
- HDFC TaxSaver
- ICICI Prudential Tax Plan
- DSP BlackRock Tax Saver Fund
- Birla Sun Life Tax Relief '96
- Reliance Tax Saver (ELSS) Fund
- IDFC Tax Advantage (ELSS) Fund
- SBI Magnum Tax Gain Scheme 1993
- Sundaram Tax Saver
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