ICICI Prudential AMC proposes to rollover three FMPs to negate M2M impact

Move will also give investors indexation benefit on long-term capital gains

ICICI Prudential Asset Management Company (AMC) has proposed to extend the maturity date of three fixed maturity plans (FMPs). The fund house joins peers such as Nippon Life India AMC and Aditya Birla Sun Life AMC to extend the maturity of their closed-end funds.

ICICI Prudential AMC in its notice cum addendum on May 15 stated that it proposed to roll over its three schemes namely:

1. ICICI Prudential Fixed Maturity Plan-Series 82-1,185 Days Plan M

2. ICICI Prudential Fixed Maturity Plan-Series 82-1,175 Days-Plan Q and

3. ICICI Prudential Fixed Maturity Plan-Series 82-1,215 Days Plan H.

Units of these three schemes were allotted in early 2018 and they are set to mature at the end of this month.

The notice proposes to extend the maturity date to June 30, 2023.

According to the notice, the proposed rollover shall allow investors to stay invested over the rolled-over period with a hold-to-maturity approach, which may help in negating any intermittent mark-to-market impact arising from volatility in the debt markets.

FMPs are closed-end debt funds having a fixed maturity period. Such funds invest in various debt instruments having the similar maturity period as the fund.

A senior official in the industry said, “By extending the FMPs, investors will also get an indexation benefit on the long-term capital gains for the extended period.” Typically fund houses launch FMPs for little over three years to get the benefits of indexation.

FMPs with an investment tenure of more than 36 months qualify as a long-term investment. Any gains arising from such investment, the tax liability is 20% (plus surcharge) with indexation.

The rollover of schemes does not mean that every investor needs to continue with their investments. In case investors do not consent to the new changes, their investment under the scheme shall be redeemed at applicable net asset value (NAV) on the existing maturity date.

In the last 2-3 years, FMPs have lost some of their appeal following a spate of credit events. The data from Association of Mutual Funds in India (AMFI) shows that net asset under management (AUM) of fixed term plans stood at Rs 99,124 crore as on April 2021.

On May 4, Nippon Life India AMC had decided to roll over Nippon India Fixed Horizon Fund - XXXVI - Series 6 to June 12, 2023. In March, Aditya Birla Sun Life AMC decided to extend the maturity of a few of its FMPs.

Fund house in its notice had stated “Owing to low yields at offer to investors, it will be prudent for existing investors to make maximum use of the indexation benefit and opt for extending their investments.”

Market participants say given the low bank fixed deposit (FD) rates, it’s better to continue investing in FMPs.

“Currently top-rated AAA two years bonds are trading in the range of 4.5-5 per cent, better than the bank's FDs. FMPs not only offer additional indexation benefits but help counter market volatility and give slightly better returns,” said a fund manager from the leading fund house.

The FMP industry snapshot
 

Total number of schemes: 519

Number of folios: 346,196

AUM: Rs 99,124 crore

April 2021 flows: Outflow of Rs 22,402 crore
 

Source: Amfi, Note: Data as on April 2021