It is becoming increasingly difficult to purchase a house due to the rising real estate market. Fixed maturity plans allow you to buy the safe haven you desire. Continue reading to learn more.
Fixed maturity plans cannot be subscribed continuously because they are closed-ended debt funds. Investments are made in various debt instruments such as certificate of deposits, corporate bond, bank FD, and money market instruments.
A fixed maturity plan’s primary objective is to provide steady income for an investor over a set period. The investor is protected from market volatility due to the fixed lock-in period or close-ended-ness. This helps in acquiring a steady income.
Fixed maturity plans have predictable rates of return that are tax efficient and tax-efficient against fluctuating interest rates.
Current interest rates for fixed deposits and small savings are falling. Fixed maturity plans can be a great option to get guaranteed income from your investments.
Fixed maturity plan refers to an investment plan that includes key elements.
- Fixed Tenure: The investor has the option of a fixed tenure lasting from 30 days to 5 years, depending on their cash flow.
- Tax benefits: These plans offer similar returns to Fixed deposit, but at a lower tax rate. These funds offer indexation benefits and long-term capital gains.
- Close-ended funds are: The potential investor cannot invest at the time the Initial Public Offering occurs and can redeem the plan at maturity.
- Investment Strategy: These investments can be made in government or corporate bonds, commercial paper, money market instruments, certificate of deposits, and other financial products.
- Credit risk: Fixed maturity plans have a lower risk because they invest in credit instruments that are highly rated. Therefore, the risk of default is minimized.
- Interest rates are closely monitored: Fixed maturity plans have very low exposure to interest rates because the fund holds the instrument(s) until the maturity period. It allows for a fairly fixed rate of return. The market volatility doesn’t affect returns, which is another benefit.
Fixed maturity plans have an indexation benefit. This means that it considers inflation from the moment an investment is purchased to the moment it is sold. It increases the investment’s purchase price to account for inflation.
Tax payment structure: Capital gains are subject to tax.
Fixed maturity plans have limited liquidity because they cannot be redeemed prior to maturity.
There are many other options, such as fixed deposit. However, the main difference is that fixed maturity plans invest primarily in government securities and company debt. They do not contain any equity component unless otherwise stated. Fixed maturity plans are the best option among all investment options. Investors must select the plan that is most suitable for their income and redemption requirements.