Fixed Maturity Plans (FMPs) have had a great relationship with Asset management companies and with the investors. FMPs were initially instruments which were mutual funds with `banklike` products. You could buy a FMP with maturity ranging from 30 days to 180 days. Then a couple of FMPs were launched with 300 days maturity, then 366 and then at least one FMP had a maturity of 3 years!
The returns also started very modestly from 6% and went right up to 12%+ …but one fine day FMP became a bad word. Suddenly liquidity concerns arose. I remember doing an article saying `are FMPs risky` on my blog.
Now many FMPs are maturing - in the month of April to be precise. The million dollar question is (am I antiquated using the word million when Obama has moved to Trillion? Sorry) where will the maturity money go?
Rather the question is - Where does the industry (mutual fund) want the money to go?
Well FMP was a fixed income product, so it should go into a similar fixed income product - Tata Motors Fixed Deposit, Tata Capital debenture …and some more instruments like that, correct? No.
It should go into Income and Gilt funds, correct? No.
It should go into short term funds, floaters and liquid funds, correct? Well NO again!
The answer is very funny. First of all it depends on who is redeeming it. If the original investor is a HNI there is a good chance that he will again look for some tax efficient way of DEBT investing. So for him the options could be floater / liquid funds till the government sends clear signals about interest rates. This could also be a sensible option in such a bad economic scenario!
If the person who is redeeming was investing on a `flavor of the month` basis, ALL the fund houses will offer him some scheme which will be tempting - e.g. no entry load if the funds get transferred to a GOLD NFO, or something to that effect!
Rest assured that all fund houses will come out with some scheme or the other - hoping to keep the cash flow with itself - even if the customer is not keen to buy!
The returns also started very modestly from 6% and went right up to 12%+ …but one fine day FMP became a bad word. Suddenly liquidity concerns arose. I remember doing an article saying `are FMPs risky` on my blog.
Now many FMPs are maturing - in the month of April to be precise. The million dollar question is (am I antiquated using the word million when Obama has moved to Trillion? Sorry) where will the maturity money go?
Rather the question is - Where does the industry (mutual fund) want the money to go?
Well FMP was a fixed income product, so it should go into a similar fixed income product - Tata Motors Fixed Deposit, Tata Capital debenture …and some more instruments like that, correct? No.
It should go into Income and Gilt funds, correct? No.
It should go into short term funds, floaters and liquid funds, correct? Well NO again!
The answer is very funny. First of all it depends on who is redeeming it. If the original investor is a HNI there is a good chance that he will again look for some tax efficient way of DEBT investing. So for him the options could be floater / liquid funds till the government sends clear signals about interest rates. This could also be a sensible option in such a bad economic scenario!
If the person who is redeeming was investing on a `flavor of the month` basis, ALL the fund houses will offer him some scheme which will be tempting - e.g. no entry load if the funds get transferred to a GOLD NFO, or something to that effect!
Rest assured that all fund houses will come out with some scheme or the other - hoping to keep the cash flow with itself - even if the customer is not keen to buy!
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