FMPs or FDs: Make an informed choice
By Neelima Shankar
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Safety of investments made is the prime concern for a conservative investor. This is why they prefer investing their funds in schemes and plans which provide assured returns. Fixed Maturity Plans, or FMPs as they are popularly called, and fixed deposits in banks are two such instruments which find favor with investors for the same reasons.

Most people must have invested in fixed deposits at some point or the other in their lives. Similarly, people with keen interest in stock markets prefer to invest in fixed maturity plans. For an average investor, with moderate knowledge of investment, these two terms often mean the same. But, in practice there are subtle differences between the two.

Fixed Maturity Plans

FMPs are close ended debt instruments which are offered and managed by mutual fund companies. These companies typically invest funds in Certificate of Deposits (CDs) and commercial papers of corporates and the government. Though returns from FMPs can be calculated beforehand, they are not guaranteed. These calculations provide an indication of how much the investor gains from the investment. In other words, based on the performance of peer funds, the investor can only assume the returns. Though, the actual returns are only ‘assumed', they normally don't vary much from the expected returns.

In India, FMPs were introduced in January 1, 2001, and since then they have steadily gained in popularity. The tenure of FMPs normally ranges from one month to five years. They are launched as FMP New Fund Offering (NFO) which remains open for 2-3 days after which the NFO does not accept any new investments. It requires a minimum investment of Rs. 5000.

Fixed Deposits

Bank fixed deposits are investment schemes where the customer can deposit funds with the banks for a fixed tenure. During this time, the deposit earns an interest on the invested amount. These are considered the safest investment options as returns are guaranteed in fixed deposits. FDs offer varying maturity tenures ranging from 7, 30, 45 days to 5 years. Interest rates on fixed deposits vary from bank to bank.

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