April 02, 2026
4 mins read
Fixed Maturity Plans (FMPs) are close‑ended debt mutual funds that invest in fixed‑income securities such as corporate bonds, government securities and money‑market instruments. These investments have maturities aligned with the fund’s tenure, offering relatively predictable returns. FMPs minimise interest‑rate risk by holding securities until maturity and are suitable for conservative investors seeking stability.
FMPs collect investor money during a New Fund Offer (NFO) and invest in instruments that mature around the same time as the scheme. Because the fund holds these securities until maturity, short‑term interest‑rate fluctuations have minimal impact on returns. Investors cannot redeem units before maturity except by selling on a stock exchange, which may have limited liquidity. FMPs may offer tax advantages via indexation when held for more than three years.
FMPs gather funds from investors during the NFO and invest primarily in debt instruments such as corporate bonds, treasury bills and certificates of deposit that mature along with the fund. The fund manager adopts a buy‑and‑hold strategy, holding securities to maturity to minimise interest‑rate volatility. Because FMPs are closed‑ended, investors cannot add or withdraw money until maturity, encouraging disciplined investing. Although returns are market‑linked and not guaranteed, they tend to be more predictable than those of open‑ended debt funds. Investments held over three years may benefit from indexation, which lowers tax liability.
Fixed tenure: FMPs have a predetermined maturity period, often exceeding three years.
Closed‑ended structure: Investors can subscribe only during the NFO and typically redeem at maturity.
Limited interest‑rate sensitivity: Holding securities until maturity reduces daily interest‑rate impacts.
Debt‑focused investment: FMPs invest in corporate bonds, government securities and money‑market instruments.
Indexation benefits: FMPs held over three years may offer tax efficiency through indexation.
Predictable returns: The buy‑and‑hold approach provides clearer visibility on potential returns, though they remain market‑linked.
Limited liquidity: Units cannot be easily sold before maturity, except on exchanges where trading volumes may be low.
Predictable return outlook: Holding securities until maturity offers better visibility on expected returns.
Lower interest‑rate risk: A buy‑and‑hold strategy reduces the impact of rate fluctuations.
Tax efficiency: FMPs purchased before 1 April 2023 and held for more than three years are taxed at 20% with indexation benefits.
Disciplined investing: The closed‑ended nature prevents impulsive exits and encourages sticking to the investment horizon.
Diversification: Investing in multiple fixed‑income instruments spreads credit risk and offers stability.
Limited liquidity: Investors cannot redeem units before maturity unless they find a buyer on an exchange.
No guaranteed returns: Returns depend on the performance of underlying securities, and defaults can affect outcomes.
Lack of flexibility: Investors cannot add funds after the NFO, making staggered investments impossible.
Interest‑rate risk: If interest rates rise sharply after investment, investors cannot shift funds to potentially higher‑yielding options because their money is locked in.
FMPs suit conservative investors seeking stable, predictable returns and willing to lock their funds for the tenure. They are ideal for those with a defined time horizon, such as saving for a financial goal in two to five years. Investors in higher tax brackets may benefit from indexation on long‑term FMPs. Individuals needing flexibility or frequent rebalancing may prefer other investment options.
The tax treatment of FMPs depends on the purchase date and holding period. For units purchased on or after 1 April 2023, gains are taxed according to the investor’s income‑tax slab, regardless of holding period. For FMPs bought before that date and held for more than 36 months, long‑term capital gains are taxed at 20% with indexation. For example, if an investor bought units for ₹100,000 before April 2023 and redeemed them after three years for ₹130,000, indexation would adjust the purchase cost for inflation, reducing the taxable gain. Interest earned during the holding period is added to income and taxed at the applicable rate.
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FMPs are considered relatively safe as they invest in debt instruments with fixed maturities, reducing interest rate risk. However, they are subject to credit risk if the issuers default.
Upon maturity, the FMP's proceeds, including the principal and any accrued interest, are credited to the investor's linked bank account. Investors may choose to reinvest in a new FMP or another investment vehicle.
FMPs and fixed deposits both offer fixed tenures, but FMPs may provide better post-tax returns due to indexation benefits. Unlike fixed deposits, FMP returns are not guaranteed and depend on the performance of underlying securities.
The choice between FMPs and fixed deposits depends on individual financial goals, risk tolerance, and tax considerations. FMPs may offer higher post-tax returns but come with market-related risks, whereas fixed deposits provide assured returns.
Yes, returns from FMPs are subject to capital gains tax. If held for more than three years, investors can benefit from indexation, reducing tax liability on long-term capital gains.
FMPs carry credit risk if the issuers of underlying securities default. They also face interest rate risk; if interest rates rise, the value of existing securities may decline.
FMPs are closed-ended schemes with a fixed lock-in period, offering limited liquidity. Investors can only redeem their investment upon maturity, which can range from a few months to several years.
Investors should assess their financial objectives, risk appetite, and investment horizon before choosing to invest in Fixed Maturity Plans.
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