sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
« General »
 Government likely to withdraw tax notice on free banking services
 Senior Citizens Savings Scheme Rules, 2004
 How salaried individuals can avail full potential of I-T benefits
 The Central Board of Direct Taxes unveiled new Income Tax Return forms for assessment year 2018-19 on 5 April. Although the manner of filing returns remains the same as compared to last year, certain changes have been incorporated in the new ITR forms.
 Income Tax efiling: Must-do steps to file your IT return for FY 2017-18 on time till you get Form 16
 What are the tax filing deadlines for financial year 2017-18?
 How income tax department can penalise you for under-reporting, misreporting income
 Start your tax planning right now
 Government confident of meeting fiscal deficit, tax revenue targets
 Clarification with respect to the E-way Bill System
 Here is how you can save on taxes

High returns, more tax benefits
August, 26th 2010

But fixed maturity plans are risky, and you need to stay put for the entire tenure.

With interest rates beginning to inch upwards, fixed maturity plans (FMPs) are making a comeback. In the last couple of weeks, Hemant Rustagi, CEO, Wiseinvest Advisors, has been receiving enquiries about the same.

Investors who are looking to lock in their money for up to one year have been making enquiries. They have queries for even shorter duration FMPs both three months and six months, says Rustagi.

Rustagis advice: While it is a good time to start locking in funds for one year, dont invest the entire surplus. Wait for some more time because interest rates could rise further. Primarily, invest only if you can stay put for the entire tenure.

Meanwhile, fund houses are gung-ho about these products. Axis Mutual Fund, for instance, has already launched four-five FMPs in the last two months. We have already exhausted our applications. We are in the process of accepting more applications, says Rajiv Anand, CEO, Axis Mutual Fund.

Some of the ongoing schemes in the market are ICICI Prudential Fixed Maturity Plan-Series 53, Fidelity Fixed Maturity Plan-Series III Plan B and Reliance Fixed Horizon Fund-XV.

According to market sources, the annual rate of returns being offered are 7.7-8 per cent. For shorter tenures like three months, the rate is seven per cent. This is higher than the existing fixed deposit rates. For instance, State Bank of India is offering four per cent for 46-90 days, 4.75 per cent for 91-180 days and six per cent for 181 days to less than one year.

But one must remember that investing in FMPs is risky, as fund houses invest in securities of companies that could default. Three years ago, they were a rage. Good returns, coupled with taxation benefits, had investors flocking to these products. What also made these lucrative was indicative portfolios and indicative yields that fund houses declared to investors at the very outset.

Things turned sour when investors realised that in some of the schemes, the money had been deployed in a single or very few companies. In some cases, the companies were different from the ones mentioned in the indicative portfolio. Many schemes had high exposure to real estate companies. There were also reports of fund houses asking investors to roll over at a higher rate of return. All this led to heavy selling in FMPs in October 2008.

Consequently, the Securities and Exchange Board of India (Sebi) introduced stringent guidelines in January 2009. Fund houses were not allowed to declare indicative yields and indicative portfolios any longer. While issuing the guidelines, Sebi said, There is a general consensus that this practice should be prohibited as indicative portfolio and indicative yield may be misleading. In addition, all schemes now have to be listed at the stock exchanges.

The liquidity of these products came down substantially. By listing these at the exchanges, an exit route is provided. But in the absence of a secondary market, the units trade at a heavy discount.

The positive side is that things could turn for the better now. As a CEO of a leading fund house says, The certainty in returns has increased now. Since investors can only exit at maturity (or at a discount at the exchange), a fund manager can construct the portfolio after taking a call on the entire tenure.

If you are able to stay locked in for the specified period, there are umpteen benefits. First, post-tax returns are better than fixed deposits. Second, if you stay invested for over one year, say 13 months, there is a double indexation benefit. That is, if you had invested in a scheme in March 2010 maturing in May 2011, you will get inflation indexation benefits of 2009-10 and 2011-2012.

This is why financial experts feel investors must only put in that part of their portfolio in FMPs which they do not intend to touch for the entire lock-in period. Also, dont invest for more than a year. With capital gains guidelines in the direct taxes code still unclear, investors should not go overboard with long-term schemes, says a financial planner.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions