SBI Fixed Maturity Plan (FMP) is a closed-end (MF) mutual fund aimed at providing investors with income and capital growth with limited interest rate risk. Under the program, the subscriber’s money is invested in a portfolio consisting of debt instruments such as government securities, PSUs and corporate bonds, etc. expiring at the latest at the end of the program. If you are considering investing in SBI FMP, here are some important things to know:
Who should invest in SBI FMP?
If you invest in SBI FMP, your funds will be blocked until maturity. Therefore, you should not invest in FMP in case you need the money before maturity. The SBI MF portal states: “FMPs are ideal for investors who want to stay invested during the life of the plan and are looking for another investment option that aims to provide better after-tax returns with minimal interest rate risk. . “
Duration of the SBI FMP mandate
Under the FMP, the investment in debt securities matures according to the duration of the plan. Thus, the duration can vary from a few months to a few years. Currently, the SBI Mutual Fund offers two live PMFs. Subscription to one of them ends today.
I. SBI Fixed Maturity Plan (FMP) – Series 5 (92 Days). The deadline to subscribe to this plan is today.
ii. SBI Fixed Maturity Plan (FMP) – Series 6 (3668 days). The deadline to subscribe to this device is May 15, 2019.
SBI FMP advantages
Less interest rate risk: FMPs have very little exposure to interest rate risk as the fund manager normally holds the instruments to maturity.
Minimum credit, liquidity risks: FMPs invest in securities of superior credit quality, which minimizes credit and liquidity risks.
Cheaper : Under the FMP regime, there is no purchase or sale of securities. This reduces the costs of the plan.
Tax gain, Indexation allowance: FMP investors can take advantage of the indexation benefit, which helps reduce the tax on their earnings. In accordance with the regulations in force, the long-term capital gains of debt UCITS, such as FMPs, benefit from the benefit of indexation. Indexation is essentially a technique for adjusting the cost of investing in the FMP relative to inflation during the investment period. The purchase price of the debt fund is adjusted to reflect the effect of inflation on it.
Indexation helps reduce the overall tax liability of an investor.
In the event of an FMP investment, the cost / purchase price of the instrument is adjusted by integrating the impact of inflation on the amount you have invested during the duration of the investment, or the years between the start of the investment and the maturity date.
Under current rules, long-term capital gains (LTCG) of debt mutual funds like FMP enjoy indexation benefits. An investment made for a period of more than 36 months in FMP is considered a long-term investment. The tax liability on the gains resulting from this investment is 20% (plus the surcharge) with indexation.