Mutual fund FMPs appetite dips among investors as interest rates decline significantly

“A lot of smart money moved from FMPs to duration funds in anticipation of a decline in interest rates in the second half of 2012,” said Rahul Pal, head, fixed income, Taurus MF. In 2012, dynamic bond funds and income funds gave average category returns of 10.25% and 9.88%, respectively.

However, the interest in FMPs is likely to go up again during the January-March quarter owing to the double indexation tax benefit offered by such funds, said experts. FMPs are typically preferred by investors in a rising interest rate scenario, since they are able to lock into high yields, and provide more stable and predictable returns to investors at the time of maturity.