Understanding the Fixed Maturity Plan: FMP Meaning, Benefits and Taxation

In India's ever-growing investment landscape, investors are constantly seeking stability without sacrificing returns. According to reports, debt mutual funds, including fixed maturity plans (FMPs), registered net inflows of approximately ₹1.38 lakh crore in the fiscal year 2025. 

It highlights a strong demand for predictable returns amidst fluctuating interest rates. A fixed maturity plan offers that perfect middle ground. It combines the discipline of a fixed deposit with the potential of market-linked debt returns.

Quick Synopsis

• A fixed maturity plan is a closed-ended debt mutual fund that invests in fixed-income instruments with a defined tenure.
• It offers predictable returns by aligning the maturity of its investments with the scheme’s duration.
• FMPs can be a tax-efficient alternative to traditional fixed deposits.

What is a Fixed Maturity Plan?

A fixed maturity plan (FMP) is a type of closed-ended debt mutual fund that invests primarily in fixed-income instruments such as bonds, government securities, certificates of deposit, and commercial papers. 

What makes FMPs unique is their defined investment tenure. For example, the tenure can range from 30 days to 5 years, and during this period, investors lock in their portfolio.

Key Features of a Fixed Maturity Plan

Before diving deeper into advantages and disadvantages, it is important to understand the key features that make FMPs distinct.

Defined Tenure

Each FMP comes with a fixed term, and investors cannot redeem their funds before maturity. You can invest only during the New Fund Offer (NFO) period.

Portfolio Stability

Because the investments mature alongside the plan, the portfolio remains stable and less sensitive to interest rate volatility.

Lock-In Structure

Unlike open-ended mutual funds, investors cannot redeem FMPs before maturity. However, stock exchanges list them and offer limited liquidity.

Low Expense Ratio

As FMPs follow a buy-and-hold strategy, they often have lower expense ratios than other open-ended mutual fund schemes.

Credit Risk

FMPs invest in debt and money market instruments to minimise default risk, but safety is not guaranteed. Credit ratings of underlying securities may change over time, affecting overall stability.

Advantages and Disadvantages of Fixed Maturity Plan

Advantages of Fixed Maturity Plan

• Tax Efficiency: FMPs held for more than 3 years qualify for long-term capital gains tax with indexation benefits.
• Predictability: The locked-in tenure ensures you know when and approximately how much you will receive at maturity.
• Diversification: FMPs invest in a mix of debt instruments, which helps reduce risk exposure compared to investing in a single bond or deposit.

Disadvantages of Fixed Maturity Plan

• Limited Liquidity: You cannot redeem before maturity, and exchange liquidity can be minimal.
• No Guaranteed Returns: Although stable, FMPs do not guarantee returns, as they depend on the performance of underlying securities.

While FMPs are not risk-free, their balance between stability, tax efficiency, and predictable income makes them attractive to conservative investors.

Grow your savings with confidence. Download the Stable Money app to invest in fixed deposits and earn up to 8.15% assured returns.

Taxation of Fixed Maturity Plan

Taxation plays a major role in determining post-tax fixed maturity plan returns. Here is how tax rules apply to FMPs:

For FMPs purchased on or after April 1, 2023, all gains, regardless of the holding period, are now taxed as per your income tax slab rate. This means there is no distinction between short-term and long-term capital gains, and the indexation benefit is no longer available.

However, for FMPs bought before April 1, 2023, the old rules still apply. If held for less than 36 months, gains are taxed as short-term capital gains (STCG) according to your slab rate. 

If held for more than 36 months, they qualify as long-term capital gains (LTCG) and are taxed at 20% with indexation, which helps adjust your investment cost for inflation and reduce your effective tax outgo.

Final Words

A fixed maturity plan offers a structured and predictable investment approach that bridges the gap between fixed deposits and open-ended mutual funds. Its tax benefits, stable returns, and disciplined structure make it a compelling choice for investors looking for a balance between safety and growth. However, understanding the underlying risks and aligning the tenure with your financial goals is key.

Invest as low as ₹1000 per month in RD with Stable Money. Get guaranteed returns with zero hassle. Start growing your wealth now!