Fund houses seem to have applied brakes on launching fixed maturity plans (FMPs) as demand for these instruments wanes following a decline in yields for three-month and one-year.

Earlier in the year, fund houses had rushed to launch FMPs in anticipation of a decline in interest rates. That frenzy has since fizzled as only 233 schemes were launched in the last five months compared with 313 launched in the first three months of the year. Only 32 FMPs were launched in August, a 16-month low. At least six FMP schemes have been cancelled or withdrawn in the past three months. Fund managers say the dip in bank CD rates in the past three months have made FMPs unattractive to investors. According to analysts, the three-month bank CDs are now trading at 8.5-8.6%, about 100 basis points lower than rates prevalent three months ago. On other hand, overnight call and repo rates are trading slightly above 8% at present. ?Investors probably believe that it is not worth locking in their money for three months just to earn an additional 25 basis points net of expenses,? said Killol.

According to Dwijendra Srivastava, head, fixed income, Sundaram MF, CD rates have declined as banks have curtailed issuances of their existing bulk deposits. ?Also, the rates in the overall system have come down because liquidity has improved dramatically,? said Srivastava. The overall liquidity deficit in the system has declined from R90,000 crore in June to R46,000 crore in August, he added.

One-year bank CDs are currently trading at 8.8-8.9% in the market, about 50 bps lower than the rates three months ago. ?Investors are reluctant to lock in their money in one-year FMPs as they feel the interest rates are lower than the prevalent levels of inflation. Instead, they are parking their money in open-ended schemes,? said Srivastava.

Analysts, however, believe that September could see more FMPs being launched. ?If the advance tax outflows this month are robust, market rates might harden, which could provide a small window for FMPs to make a comeback,? said Pandya. Most of the interest in FMPs is typically confined to the three-month and one-year FMPs, say experts.

As on July 31, the assets under management of FMPs totalled R1.07 lakh crore, according to data sourced from Value Research.