FMPs returns high in falling equity market

FMPs returns high in falling equity market (On Sep 26 , 2008) With the equity markets on a down slide, mutual funds have been aggressively launching fixed maturity plans (FMPs) to attract customers. Returns have been increasing steadily because of tighter liquidity conditions. Just a year ago, in September 2007, three month FMPs’ indicative rates were around 8 to 8.3 per cent, and for over 12 months, they were hovering around 9 to 9.50 per cent. The FMPs launched this month are offering 11 per cent for both the short and long term. However, before rushing in to invest in FMPs, one should remember that they are riskier compared to FDs as they invest in bonds and debentures of companies. And, if the company were to default, the mutual fund would be in a tight spot to deliver the indicative returns. But we all know that long term FMPs give indexation benefit to the investors.