Why Should You invest in FMP?

What is an FMP ?

FMP’s are Fixed Maturity Plans which can be compared to fixed deposits. But the only difference is the actual returns on the investment in an FMP is not known. Fixed Maturity Plans are offered by Mutual Funds. These Funds Invest in Money Market Instruments and Debt Instruments ( Like Government Bonds, Certificate of Deposits ). A Fixed Maturity Plan is a close ended fund which means that it cannot be withdrawn before the tenure ends.

So How good is an FMP compared to a Fixed Deposit ?

FMP’s have a Taxation Benefit compared to an Fixed Deposit. So they have a better Post Tax Returns.

So why should you go for an FMP?

FMP invested in Growth option having a tenure more than a year is classified as Long Term Capital Gains which is 10 % without Indexation Or 20 % without Indexation. Whereas a fixed deposit will have tax as per your Tax Bracket which can vary from 10 % to 30 %.

So what is Indexation?

Indexation is a technique to adjust the investment with cost Inflation Index (CII).

 Actual Returns = Returns – Inflation.

 So the cost of Investment is adjusted to inflation when the Capital Gain Tax is Calculated. The Cost Inflation Index is released by Central Board of Direct Taxes (CBDT) every year.

Indexed Purchase Price = Purchase Price * (CII for current year / CII for year of purchase)

Let Take an Example

Particulars FMP (with Indexation) FD
Amount Invested 100000 100000
Assumed Interest Rate (p.a.) 9.50 % 9.50%
Tenure of Investment 1 Year 1 Year
CII of Investment Year (2012-2013) 852 N/A
CII of Maturity Year (2013-2014) 939 N/A
Value at Maturity 109500 109500
Indexed Purchase Price 1,10,212 Not Applicable
Net Profit / Loss adjusted to Indexation –  711 9500
Tax Rate 22.66% 33.99%
Profit After tax Rs 9500 Rs 6270

So your post Tax Returns are the better compared to a fixed deposit or even a tax free bond.

And the Long Term Capital Loss Can be adjusted with any Capital Gain within in the next 4 Years.

To Invest in FMP Visit us @ www.fundsinn.com

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