Fixed mature plans are better than deposits| Dividend and growth options are there.

July 1st, 2010| Finance.

Fixed mature plans are better than deposits| Dividend and growth options are there.

Fixed mature plans are one of the plans in the mutual funds and they are called as FMP in short. As the name suggests they are fixed plans for certain duration. Once they invest, they can’t be taken back until the certain period is completed. The money collected from the investors in kept in money markets like commercial papers, treasury bills and date plans like corporate bonds, fixed deposits according to the market demand. The fund manager decides the amount to be invested in different areas without affecting the actual amount. FMPs are also applicable for small and long term investments. We can get the NFOs for these within 3 days and we can invest in this duration. If we want to exit the plan, we should pay 1-2% exit load.

How will the return be?

Even if we don’t have any guarantee on the money, we can expect more amount than the bank deposits. The FMPs in 2008 had given 10-11% of money and now they are giving 7-7.5% money back. We can know the amount which will be returned during the investment. The changes in the interest rates won’t affect the amount to be returned.

How It is better than the deposits?

FMPs are better than the bank deposits in the tax utilities because the interest on the deposits is calculated and the tax is to be paid on the personal slabs. The person having more slabs should pay 30.9%. If the interest on the deposit is 8%, we get only 5.5% to our hand. In the case of FMP, the case of tax is maximum up to 2%. There will be dividend and capital gain tax. If we exit the plan after one year, only capital gain is applicable for it. This will be 22.6% with indications and 11.33% without indications. If the dividend is considered, the tax is 14.65% for retail investors and 22.6% for the corporate investors.

Dividend or growth:

Fixed mature plans are correct for the people who are having more tax brackets. There are dividend and growth options for the FMPs like other mutual funds. The period of duration decides which is better for the tax utilities. The dividend option is better for the FMP in one year. The dividend distribution tax is less than the short term capital gain tax. It is better to select the growth option when the duration is more than one year. We should wait until the duration is completed to gain the profit.