Fixed Maturity Plans in Mutual Fund

What are Fixed Maturity Plans in Mutual Funds?

The Fixed Maturity Plan is a closed-ended mutual fund scheme that primarily invests in fixed-income securities such as government securities, certificates of deposit, corporate bonds, commercial papers, and other debt instruments. As the name suggests, FMPs have a fixed maturity period ranging from a few months to several years.

Investors can subscribe to an FMP only during the New Fund Offer (NFO) period. Once the NFO closes, no fresh investments are allowed. The units cannot be redeemed with the Asset Management Company (AMC) before maturity. Still, since such schemes are mandatorily listed, investors may trade them on the stock exchange in demat form, subject to liquidity.

FMPs are often compared to fixed deposits (FDs) because of their fixed tenure and relatively predictable returns. However, unlike FDs, the returns of FMPs are not guaranteed; they depend on the performance and credit quality of the underlying debt instruments in the portfolio.

Key Features of Fixed Maturity Plans in Mutual Funds 

The speciality of FMPs should be known before deciding to invest. These characteristics distinguish them from other types of mutual funds:

• Fixed Tenure: Each FMP has a fixed maturity decided by the AMC, ranging from a few months to several years.

• Closed-ended Nature: Investors can subscribe only during the New Fund Offer (NFO) period. However, since closed-ended schemes are mandatorily listed, investors may sell their units on the stock exchange in demat form if there is sufficient liquidity.

• Debt-Oriented Investments: Most of the corpus is allocated into securities with a fixed income, including bonds and treasury bills.

• Listed on Stock Exchanges: Redemption is not permitted before maturity, but units can be traded on a stock exchange only in demat form, providing a partial exit.

• Expected Outcomes, Not Guaranteed: FMPs aim to align securities with the tenure, making returns more predictable than open-ended debt funds. However, returns are not assured and depend on credit quality.

How Fixed Maturity Plans in Mutual Funds Work?

The working of Fixed Maturity Plans can be understood as follows:

• Invested till maturity: FMPs allocate funds to debt securities aligned with the scheme’s tenure. Investors typically receive principal and accrued interest upon maturity, offering relatively stable returns.

• Lower interest rate risk: Since securities are held until maturity, FMPs are less sensitive to short-term fluctuations in interest rates compared to open-ended debt schemes.

• No redemption pressure: Being closed-ended, investors cannot exit before maturity. This eliminates pressure on fund managers to sell securities prematurely.

• Cost efficiency: FMPs generally adopt a buy-and-hold (accrual) approach with limited active trading. This structure can make them cost-efficient, though expense ratios differ across schemes and vintages. For clarity, investors should check the scheme’s Total Expense Ratio (TER) in the factsheet.

• Credit risk exposure: Returns depend on the ability of issuers to meet their obligations. Defaults or downgrades in credit quality can negatively affect outcomes.

• Investor due diligence: Reviewing the scheme information document is essential. Investors should avoid schemes with uncertain or weak credit quality.

Benefits and Limitations of Fixed Maturity Plans in Mutual Funds 

Before deciding to invest in an FMP, evaluating the advantages and potential drawbacks is essential. The following table provides a structured comparison:

Who Should Invest in Fixed Maturity Plans in Mutual Fund? 

The following categories of investors may consider FMPs:

• Low Risk Tolerance: Appropriate for investors seeking debt exposure with relatively lower sensitivity to equity market fluctuations.

• Defined Investment Horizon: Suits investors who can remain invested until maturity without depending on early withdrawals.

• Seeking Diversification: Useful within a fixed-income allocation to balance exposure alongside equity or other asset classes.

• Cost-Conscious Investors: FMPs can be cost-efficient due to their buy-and-hold design, but expense ratios differ by scheme; check the factsheet TER.

• Cautious Return Expectations: Returns are influenced by the credit quality of issuers, and defaults or downgrades remain a possibility.

Important to Note: Indicative or assured returns cannot be promised, as per SEBI and AMFI guidelines. Any stated yield only reflects the portfolio securities and should not be taken as a guarantee.

How to Invest in FMPs?

Investing in FMPs involves a structured process. Since they are closed-ended schemes, investors must subscribe during the NFO period. Here’s a step-by-step guide:

• Research Available Options: Review FMPs launched by different Asset Management Companies (AMCs).

• Evaluate Tenure and Objectives: Choose an FMP whose maturity aligns with your investment horizon.

• Check Credit Quality: Many FMPs are structured to invest in high-quality debt instruments that align with the scheme’s tenure. However, the credit mix varies across offerings, so reviewing the Scheme Information Document (SID) and portfolio disclosures is essential before investing.

• Full KYC Procedures: KYC is a one-time process, but documentation may need renewal for updates, changes in personal details, or when KRAs conduct re-validation.

• Subscribe by NFO: Investing can be through online platforms, AMC websites, or distributors.

• Hold Until Maturity: Invest until maturity to receive the expected outcomes. Tax treatment depends on purchase and sale dates; check the current rules.

• Redeem Automatically: The redemption proceeds at maturity are directly deposited into the investor's bank account.

Top 10 Fixed Maturity Plans in Mutual Funds

Here’s a list of the top-performing Fixed Maturity Plans (FMPs) based on their AUM, 1-year returns, and 3-year CAGR:

Note: FMPs are closed-ended and available only during NFO. The schemes shown are examples of listed FMPs as of 6 Sept 2025; they may not be open for new subscription. Returns/NAVs vary and should be verified on AMC/AMFI sources.

FMPs vs Fixed Deposits (FDs)

Although both fixed deposits and FMPs require that the funds be locked away over time, there are differences between the two. The differences are shown in the table below:

Taxation of Fixed Maturity Plans in Mutual Fund 

Taxation plays a crucial role in evaluating the attractiveness of FMPs. The rules differ depending on the purchase date and holding period.

Key Takeaways

Fixed Maturity Plans in Mutual Funds can offer greater return predictability than equities. However, under tax rules effective 1 April 2023, most are classified as Specified Mutual Funds (SMFs) and taxed at slab rates. Investors should also consider credit and liquidity risks. FMPs can also serve as an alternative to fixed deposits, offering a closed-ended tenure and debt-oriented investments. Taxation benefits such as indexation are no longer available for sales made on or after 23 July 2024.

FMPs may come in handy to diversify a portfolio by offering familiar returns to the investor who is ready to invest the funds to maturity and benefit from better taxation. Like any investment, they need to evaluate their financial objectives, risk-taking capacity, and seek the advice of financial advisors before committing.