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Mutuals fall for fixed maturity

Calcutta, May 25: Fixed maturity plans (FMPs) seem to be the mantra for mutual fund houses with almost 50 such schemes being launched since January.

Most asset management companies have already put in place such funds with many more in the pipeline. What is the reason behind such a rush'

Said A. Balasubramanian, head (fixed income) of Birla Mutual Fund, “In the current scenario, when there is apprehension about interest rate movements, the need of the hour is a plan that can provide predictable returns. FMPs provide indicative returns with much lesser risk, which cannot be achieved in an open-ended fund.”

Balasubramanian said though the difference in returns between an income fund and an FMP might not be substantial at the end of the term, the latter is popular due to its predictable nature.

FMPs are close-ended funds with a fixed maturity period of 15, 30, 90, 141, 180 or 365 days. Some also have a three- or five-year timeframe.

Sethuram Iyer, chief investment officer of SBI Mutual Fund, said, “These plans are mostly sought after by companies, which can invest a certain amount for a fixed term but do not want to expose it to interest rate risk.”

Therefore, a majority of subscriptions are from corporate houses, while retail participation is weak.

“We have not received sufficient response from retail investors though the longer term FMPs are mostly suited to their needs. The retail money flowing into the schemes are mostly from high net worth individuals,” said Balasubramanian.

What is the reason behind such a tepid response from retail investors'

“Lack of awareness is the major reason behind the lack of interest from this class of investors. Such plans are open for a limited time and also not very highly publicised like the open-ended ones,” said Iyer.

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