You can think of a fixed maturity plan like a train journey: a clear start, a predictable end, and a steady ride to reach your destination. You invest once, remain invested until the plan matures, and receive the proceeds at the end. This makes FMPs suitable for investors who want their money to grow quietly in the background without reacting to every market fluctuation.
Read on to learn more about fixed maturity plan mutual funds.
What is Fixed Maturity Plan?
FMP stands for fixed maturity plan. It is a type of mutual fund with a fixed lock-in period, meaning your investment remains locked until maturity. These are close-ended funds: you can invest only during the initial offer period and redeem your units when the plan matures.
FMPs primarily invest in fixed-income instruments—bonds, deposits and similar securities—that mature around the same time as the plan. Because of this alignment, returns tend to be more stable and predictable than those of equity funds.
Taxation follows the rules for debt mutual funds. If you hold an FMP for three or more years, indexation benefits apply, which can significantly reduce taxable gains.
How Do Fixed Maturity Plans Work?
Fixed maturity plans operate on a simple premise: the fund’s life and the underlying investments’ maturities coincide, reducing exposure to market volatility. The typical process is:
- Launch: A fund house issues an FMP through a New Fund Offer (NFO).
- Investment window: Investors can subscribe only during the NFO period.
- Asset selection: The fund manager invests the pooled money in debt instruments whose maturities align with the scheme’s maturity.
- Lock-in period: The funds remain locked until the scheme matures; early exits are generally not permitted.
- Payout: Upon maturity, investors receive their principal along with the accrued interest or gains.
Because holdings mature together, the fund minimizes mark-to-market risk and offers more predictable outcomes than open-ended alternatives.
What Do Fixed Maturity Plans Invest In?
FMPs invest exclusively in fixed-income securities that provide steady income and lower risk compared with equities. Common instruments include:
- Corporate bonds: Debt issued by companies, selected based on credit quality.
- Government securities: Sovereign debt considered very safe.
- Certificates of Deposit (CDs): Short-term bank deposits.
- Commercial paper: Short-term corporate borrowings.
- Non-convertible debentures (NCDs): Long-term debt instruments that cannot be converted into equity.
The fund manager chooses instruments whose maturities are synchronized with the FMP’s tenure so the portfolio winds up at the same time.
Key Features of Fixed Maturity Plans
FMPs offer several characteristics that distinguish them from other mutual funds:
- Fixed lock-in: Investments remain until maturity, with limited or no early exit options.
- Close-ended structure: Subscriptions take place only during the NFO.
- Lower risk: Predominantly debt investments reduce exposure compared with equity funds.
- Predictable returns: Aligning asset maturities with the scheme’s life improves return visibility.
- Tax efficiency: Holding for more than three years allows for indexation benefits, lowering tax liability on gains.
These features make FMPs attractive to conservative investors seeking stability and clarity for their financial planning.
Pros and Cons of Fixed Maturity Plans
Like any investment, FMPs have advantages and drawbacks to consider.
Benefits
- Stable returns: Lower sensitivity to interest-rate swings and market volatility.
- Tax advantages: Indexation benefits for holdings exceeding three years can reduce tax on gains.
- Lower market risk: Limited exposure to equity-like fluctuations makes FMPs suitable for risk-averse investors.
- Easy goal planning: Fixed maturity aligns well with specific time-bound objectives.
Risks
- No early exit: Limited liquidity means you generally cannot withdraw funds before maturity.
- Returns not guaranteed: While more predictable, FMP returns are not fixed like bank deposit interest.
- Low liquidity: Although some FMPs may list on exchanges, finding buyers mid-term can be difficult.
Fixed Maturity Plan vs Other Mutual Funds
FMPs differ from open-ended debt funds in several important ways:
| Feature | Fixed Maturity Plan | Open-ended Debt Fund |
|---|---|---|
| Entry | Only during NFO | Any time |
| Exit | Only at maturity | Any time |
| Liquidity | Low | High |
| Risk | Lower | Varies |
| Return visibility | Higher | Less predictable |
| Tax after 3 years | With indexation | With indexation |
If your priority is clarity and reduced risk, an FMP may be a better option than a typical open-ended debt fund.
Who Should Consider a Fixed Maturity Plan?
FMPs suit investors who:
- Seek stable returns with lower market risk
- Can lock their funds for a defined period, often 3–5 years
- Want favorable tax treatment on debt investments through indexation
- Prefer a set-and-forget investment approach over active trading
FMPs are particularly useful for planned goals—education, weddings, or major purchases—where you don’t need immediate access to funds. They are not ideal if you require high liquidity or instant access to cash.
Consider your time horizon, tax situation and liquidity needs before choosing an FMP. Proper alignment of the plan’s maturity with your financial goals will help you make the most of its predictable, lower-risk profile.