A Fixed Maturity Plan (FMP) is a close-ended SEBI-regulated debt mutual fund with a defined maturity (typically 3-5 years). The fund holds a portfolio of bonds with matching maturities, so the indicative YTM at launch is largely what investors realise at maturity. It is the MF route to lock in current yields, similar to an FD but with potentially better post-tax returns for short-tenure debt (post Apr-2023 slab tax applies).
Worked INR example
Aditya Birla Sun Life Fixed Term Plan launches with 3-year maturity, holding AAA + sovereign paper at portfolio YTM 7.8%. NFO subscription window 5 days; ₹1 lakh invested locks in ~7.5% net of TER (0.3%). On maturity in 3 years, units are auto-redeemed at then-NAV ≈ ₹1,24,300. Versus an SBI FD at 7.1% giving ₹1,22,800 pre-tax. Post-Apr-2023, both are taxed at slab rate, so FMP advantage now comes from credit-quality choice and absence of TDS on accrual.
When to use
- Locking in current yields when rate-cut cycle is expected (matures at higher coupon)
- Investors with defined maturity needs (children's tuition, balloon payment)
- Alternative to FDs above ₹5 lakh DICGC cover where credit diversification helps
SEBI caveat
FMPs are close-ended and listed on NSE/BSE — secondary-market exit is at deep discount due to low liquidity. Indicative YTM is gross of TER. Post-Apr-2023 all debt MFs taxed at slab regardless of holding period (Sec 50AA).