What you must know about FMPs
Live MintFMPs are essentially close-ended funds where new fund offer are launched for a pre-determined period and then closed for subscription. Fund manager’s ability to buy and hold the portfolio securities until maturity and matching the tenure of portfolio securities with the tenure of the FMPs makes this exercise easier. Reduced volatility: While openended funds are susceptible to change in NAVs based on interest rate movements, the same impact on NAVs of FMPs is largely disregarded as by the time the FMP matures, largely the coupons of the bonds have been received and the bond value tends to par value. Lower costs and tax efficiency: FMPs reduce the cost of money management due to extremely low portfolio churn. When invested with a three-year horizon, the indexation benefits for mutual funds kicks in and thus, FMPs become a great way to provide tax efficient returns.
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