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Fixed Maturity Plans vs. FDs – Understand the difference

Lack of efficient personal finance management and uncontrolled spending may lead to a financial downfall. And hence it becomes critical for each one to have a balanced financial plan, some emergency funding, and savings or investments. Savings and investments are two different things. While saving includes keeping your money aside. Investments mean strategically saving and using the money to grow more wealth. Set for yourself short and mid-term financial goals at the beginning. Efficient finance management proves to be helpful at the time of an emergency or at the time of retirement. When it comes to investment, there are multiple banking and non-banking companies like Bajaj Finance that offer a variety of plans for their customers. The company offers the Highest fixed deposit rates on their FD plans.

Fixed Deposit is one of the favorite investment modes in Indian and is widely preferred by people who want to take a minimal risk on their investments. A modern investment plan Fixed Maturity Plan is recently becoming favorite amongst the investors. Fixed maturity plans are close-ended debt funds. In simple language fixed maturity plans are mutual funds with a lock-in period. These mutual funds are invested in a company debt or government securities. Fixed deposits are comparatively more straightforward investment instruments that also come with a fixed tenor. Tenor being a common component, many people often confuse a fixed maturity plan with a fixed deposit plan. However, both schemes are entirely different.

Fixed Maturity Plans

Fixed maturity plan has recently become one of the investor’s favorite mutual funds investment instrument. Fixed maturity plans are close-ended debt funds with a lock-in period. The fixed lock-in period ranges from about 30 days to seven years. Unlike FDs; investors can invest in their FMP during a New Fund Offer (NFO) period hosted by the fund houses. Unlike traditional mutual funds that have a frequent buying and selling of the stocks, the fund manager in FMP follows a buy and hold strategy. The investor buys an FMP and holds the investment until the maturity period. Value of Fixed Maturity Plan is dependent on Net Asset Value Funds. The NAV funds of the organization fluctuate every day, and with that value of an FMP also fluctuates. As compared to other equity funds the FMP involves fewer risks, but it also has low returns as compared to other instruments. The equity fund instrument (FMP) can be helpful for the investors who fall in a high-income tax bracket. The tax saving system can help them to save on the huge amount they will be paying as the tax. For an investor to gain the indexation benefits, they need to be engaged to any investment plan for at least three years, and here the FMP comes handy for the investors who have no liquidity requirements for three years.

Also, Read This: What is Corporate Fixed Deposit

Fixed Deposits

Fixed deposits have been most preferred investment plan by the investors especially senior citizens who are less likely to take higher risks. The investment plan is secure and offers assured returns on the principal invested amount. An investor can invest a fixed amount at the beginning of the investment and get assured returns earned from fixed deposit rates. An investor can then reinvest the earned interest, or they can opt for a periodical pay-out. Unlike FMPs Fixed Deposits are open throughout the year, an investor can buy the plan anytime they want. The maturity period or tenor like FMP is fixed initially. But the investor can not withdraw the money from their investment before the maturity period. At the time of urgency, when the investor wants to withdraw the invested amount, a penalty is levied.

Concluding the differences between both the plans:

  • FDs are managed by banking and non-banking finance companies while FMPs are issued and managed by mutual funds
  • Fixed Deposit carry an assured and uniform return amount, while Fixed Maturity Plans do not have any uniform returns.
  • The tax applicable on FMP is lower as compared to the tax that is applicable on Fixed Deposits.
  • Premature withdrawal is not allowed for Fixed Maturity plans while for Fixed deposits withdrawals can be made by paying the penalty.
  • As compared to Fixed Deposits, Fixed Maturity plans carry more risk.

Nevertheless, as an investor, it is important to do sufficient research based on the amount you are planning to invest as well as other requirements. Go for an investment plan that better suits the needs and offers a higher return on your investments.

What do you think?

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Written by aman khanna

 

 

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