SBI Mutual Fund is all set to launch the fixed maturity plan (FMP) Series 66 tomorrow, on July 7, 2022. With a tenure of 1,336 days, this scheme will mature on the date of the tenure’s expiry.
Put simply, fixed maturity plans (FMPs) are a type of mutual fund scheme with a fixed tenure. This scheme will invest the available corpus into specific debt instruments, maturing in the same period as the scheme.
According to the official schedule uploaded on sbimf.com, the FMP series 66 scheme will be open for subscription from tomorrow, July 7, 2022, onwards. The new fund offer (NFO) period is scheduled to end on Monday, July 11, 2022.
For investors who are keen to remain invested for a fixed tenure, FMPs are among the best of options. These plans tend to provide better post-tax return along with minimising any interest rate risks.
FMPs provide benefits of both low cost and low tax. FMPs are cost-effective, as there is no buying or selling of securities during the tenure period by the fund managers. This keeps the transaction cost at the lowest level.
Indexation And Taxation Benefit
Money invested in an FMP above a certain time period will provide the benefit of indexation. Here, indexation refers to adjusting the cost of your investment by incorporating the effect of inflation during the tenure.
Like any other debt funds, FMPs also enjoy taxation benefits. In debt funds, if you hold your investment for more than 36 months, it attracts long term capital gain tax at 20 per cent with indexation. But in other fixed income instruments, it is according to your tax slab. So, if you are in a higher tax slab, your post-tax return from FMPs will be higher than the return from bank fixed deposits at the same rate of interest.
For the FMP series 66 scheme, investors can index their cost of investment from FY 2022-23 to FY 2025-26. This adjustment will ultimately lower the tax on their returns.
The FMP introduced by SBIMF comes with two key aspects – namely a minimum investment of Rs.5,000, and no exit load. So, investors do not have to bear any charges exiting the scheme, partially or fully, from the allotment date.
Although the tenure of the scheme is fixed, the maturity date will vary based on the allotment date. For e.g., if the allotment date is July 12, 2022, the date of tenure expiry will be April 2, 2026.
Though FMPs allow early exit through the exchange route, as they get listed on bourses, but considering the liquidity, you will have to exit at a loss. If your investment time period allows you to hold till maturity, you could consider investing in this.