Fixed Maturity Plans vs. Fixed Deposits – Which One Should You Choose?

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If you want assured returns on your investments, a fixed deposit (FD) is one of the most popular choices. Another option that you may consider is fixed maturity plans (FMPs). These are close-ended debt funds offered by mutual fund houses and can be a good option to include in your investment portfolio.

You may be confused about which of these two alternatives is better. Before making this decision, understand both these products:

Fixed Maturity Plans vs. Fixed Deposits

FDs

Banks and non-banking financial companies like Mahindra Finance offer FDs. These are guaranteed-income products, wherein the interest rates are pre-set, ensuring secure returns. You can choose different tenures based on your investment horizon, which enables you to meet various financial goals.

FMPs

FMPs are close-ended debt schemes, which means you can invest only during a new fund offering (NFO). These schemes are available for a specified tenure. Additionally, you cannot exit from the scheme until maturity; however, you may be able to sell it on the stock exchange. Here, a majority of the fund corpus is invested in fixed-income securities.

Having understood the meaning of both these investment instruments, here is a comparison of FD vs. maturity plans:

  FDs Fixed maturity plans
Returns Predetermined as per the prevalent rate at the time of opening Not guaranteed
Tax implications Interest is included in your total income, and the taxation is done at the applicable rate For FMPs with a maturity exceeding three years, returns are considered as a long-term capital gain (LTCG), and the taxation happens at the prevalent LTCG tax rate
Indexation benefits Not available, as the returns are not adjusted after  accounting for the inflationary increase Available for FMPs that have a maturity period of more than three years
Premature withdrawal Possible by paying the applicable penalty Premature withdrawal is not allowed; however, you may sell on the stock exchange
Listing on a stock exchange Not applicable Mandatory as per the Securities and Exchange Board of India (SEBI) guidelines
Credit risk No risk as the fixed deposit interest rates are certain Some inherent risks, as returns are not guaranteed

FMPs may offer better returns in a high-interest environment but have some risks. Check the credit rating before making your decision. If you want assured returns, FDs are a prudent choice. Mahindra Finance offers FDs at attractive interest rates. You can review the FD eligibility criteria on the issuer’s website and make a wise decision.

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