FMP or FD? The question answered!

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MFs see 8.6% rise in AUMsMFs investor base grow faster than AUM

: full tax payable on bank deposits.

The only question that remains is if they are as safe as bank deposits. In theory, they aren't. Like any other mutual funds (and unlike banks), you could lose all your money in an FMP. In practice, FMPs have been predictable and safe.

However, to enhance the overall yield, FMPs may assume high credit risk and run the risk of default. Nowadays, the increasingly tight liquidity and credit situation could mean that some of the companies in which FMPs invest could be sailing closer to the edge than earlier. There's plenty of talk about how some real estate companies are facing tough times. If an FMP has invested in such a company's debt, the chances of an FMP returning less than the indicated yield or even turning in a capital loss cannot be ruled out completely.

Generally speaking, FMPs invest in high quality instruments, which have been rated by at least one credit rating agency. In case of investment in unrated papers, prior approval of the board of directors of the AMC or the Trustee has to be obtained. All things considered, even though FMPs are generally seen as something that only companies invest in, there's no reason why individuals should not use them as more tax-efficient fixed deposits.