Poor returns in fixed income plans drive MFs to float FMPs

New Delhi, Nov 29 | Updated: Nov 30 2004, 05:37am hrs
With returns in fixed income schemes reducing to a trickle, several mutual funds have floated fixed maturity plans (FMPs) to lure investors. Funds have lined up as many as 26 such schemes since August this year. In comparison, the entire year 2004 saw 42 FMPs hitting the market.

Also, in November, funds like Prudential ICICI MF, Kotak Mahindra MF, ING Vysya MF and StanChart MF have filed with the Securities and Exchange Board of India (Sebi) for launching five such plans.

The mutual fund rush for launching FMPs began since August this year as they launched as many as 10 FMPs during the month, according to data available with Value Research.

The data, however, do not include schemes that have already been redeemed.

In September, funds launched seven FMPs and the following month saw four FMPs hitting the market. During the current month, there have been five such launches.

Today, the fixed-income investment opportunities have dried up. While floating rate funds are giving very low return, bond funds have become a bad option. While fixed maturity plans are tax efficient vehicles, they also have low expense ratios. The expense ratio ranges from 20-30 basis points, says Value Research chief executive Dhirendra Kumar.

Funds that have lined up a host of FMPs during the year include Prudential ICICI MF (seven schemes), Birla Sun Life MF (seven), Principal PNB MF (five), Reliance Mutual Fund (five), Tata MF (four), UTI MF (four), HDFC MF (three) and JM MF (three).

Debt markets are not performing. FMPs, monthly income plans (MIPs) and floating rate funds have become the flavour of the day. Besides being tax efficient vehicles, FMPs have very low expense ratio, thus enhancing returns, says Escorts MF senior vice-president and head KK Mital.

Basically, these instruments are designed for corporates and high networth individuals, he adds.