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Retail investors turn to FMPs
August, 25th 2006
Fixed maturity plans offer higher post-tax returns vis--vis bank deposits -------------------------------------------------------------------------------- Comparative figures For one-year FD rate of 8 per cent, banks will yield roughly 5.35 per cent post-tax. But a FMP of a similar duration, at 8.1 per cent yield, will deliver almost 7.2 per cent post-tax. -------------------------------------------------------------------------------- In keeping with past trends, the universe of fixed maturity plans (FMPs) launched by mutual funds has continued to expand, thanks to investors who are increasingly seeing merit in these allocations. The trend is prompting distributors to expect higher mobilisations for FMPs in the coming days. The inclination to invest in FMPs is being seen in the backdrop of higher returns offered by these plans vis--vis what is provided by bank deposits. Considering the post-tax returns offered by both, the former seems to be more attractive, fund distribution circles pointed out. Mata Securities, an intermediary that has examined the recent growth in the FMP segment, is of the view that the trend witnessed over the past few months may well continue. Mr Sameer Kamdar, National Head - MFs, feels that it is not without reason that retail investors (not excluding high net worth individuals) are more active on the FMP front these days than before. "This trend is due to the high rate offered in FMPs, which on a post-tax basis would outdo bank FDs," he noted, while referring to the one-year FD rate of 8 per cent. The latter will yield roughly 5.35 per cent post-tax. In comparison, an FMP of a similar duration, at 8.1 per cent yield, will deliver almost 7.2 per cent post-tax. This has encouraged fund houses to launch one-year FMPs. As figures worked out by Mata reveal, FMPs have grown from Rs 15,470 crore in December last year to about Rs 28,500 crore in July 2006. Considering individual fund houses, the growth is quite significant in a few cases. These include HSBC MF, Kotak Mahindra MF and Sundaram MF. Others such as HDFC MF and ABN AMRO MF started from scratch to reach where they are today. SKP Securities, another fund distributor, also provides examples of indicative yields. A recent ABN AMRO MF's 366-days plan, which closed some days ago, had an 8 per cent indicative yield (net). Incidentally, a Prudential ICICI MF's 400-days plan (with a high minimum investment) has an 8.1 per cent indicative yield.
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