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No takers for fixed maturity plans

Monday, 30 December 2013 - 10:48am IST | Place: Mumbai | Agency: DNA

Fixed maturity plans (FMPs), once a sought-after investment option in the debt category, are not able to find many takers of late.

As a result, several fund houses such as Kotak, DSP BlackRock, ICICI and Birla Sun Life had to withdraw their FMPs as they could not even collect the minimum stipulated amount.

Dhirendra Kumar of Valueresearch,com attributed this to lack of liquidity in the market. “Investor appetite has clearly reduced. That’s why, people are not willing to invest. More so because in uncertain times, people want more liquidity.”

Financial planners say high inflation has reduced the propensity to save among people. So, investors are more inclined to hold on to cash for now.

Srikanth Meenakshi, co-founder, Fundsindia.com said that FMPs, being low-commission products,  do not get adequate attention of agents these days. “On an average, the commission is only 10 basis points (bps), and in certain cases it’s even 5 bps. In very select FMPs, the commission is 20-25bps. As a result, agents don’t have the incentive to push these products,” he added.

Experts say that the demand-supply mismatch has also led to certain FMPs being called off after their launch. “It is not because one product is more efficient than the other that some are able to find takers. It’s just that investors are not willing to park their money now,” said Meenakshi.

Lakshmi Iyer, head, fixed income and products, Kotak Mutual Fund, is hopeful that the investment momentum will pick up soon. “Right now, we are not seeing too many inflows, but in February-March, investment in FMPs will likely pick up.”

This is because FMPs provide double indexation benefits which kick in when investors hold the product for more than one year. This gives investors the edge in taxation as compared to other debt instruments such as fixed deposits. Which is why, such products usually sell like hot cakes during the tax-saving period of February-March.

Indexation takes inflation into account while calculating the cost of acquisition of an asset. Double indexation provides inflation benefits for two years even though investors have held the investment for a little over one year (say for 15 months).

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