When investors look for stability and predictability in their portfolio, a fixed maturity plan (FMP) often stands out as a smart choice. These close-ended debt mutual funds are designed with a specific maturity date, allowing investors to align their investments with upcoming financial goals. Unlike open-ended funds, FMPs follow a buy-and-hold strategy, which helps reduce interest-rate risk and provides better visibility into potential returns.
Fixed maturity plan is typically invest in fixed-income instruments such as certificates of deposit (CDs), commercial papers (CPs), corporate bonds, and government securities. Since the maturity of these instruments is aligned closely with the plan’s tenure, the fund manager minimizes reinvestment risk. For investors, this means a more predictable outcome—something especially valuable when planning for near-term financial commitments like tuition fees, upcoming EMIs, or short-term savings goals.
However, it's important to understand that FMPs are not completely risk-free. They carry credit risk if any issuer within the portfolio defaults. They also do not guarantee returns, although historically they have provided relatively stable performance. FMPs can also be tax-efficient for investors holding them for more than three years, as indexation benefits may reduce tax liability.
On the other hand, investors who want extreme liquidity with minimal volatility may prefer an overnight fund. These funds invest in securities maturing within one day, offering almost zero interest-rate risk and allowing easy entry and exit. While overnight funds focus on safety and convenience, FMPs target stability with potentially better returns over their defined tenure.
In essence, a fixed maturity plan works best for investors who can stay invested until maturity and want predictable, tax-efficient outcomes. Combining FMPs with liquid or overnight fund options can also create a balanced short-term debt strategy that offers both stability and flexibility.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.