Returns angst pushes investors towards FMPs

Hardening interest rates and a volatile debt market have pushed investors towards alternative investment avenues to maximise returns on their investments.

In this scenario, fixed maturity plans, offering indicative returns, low expense ratios and fixed-term investments are gaining popularity among investors, fund managers said.

Fixed maturity plans are investments made by mutual funds for a fixed period of time, without any churning of portfolio.

While HDFC Mutual and Reliance Mutual have just closed their FMPs, Standard Chartered Mutual's FMP is currently open for subscription. Prudential ICICI Mutual, JM Mutual and Kotak Mutual are planning their FMPs in the coming weeks, and Birla Mutual recently closed a 30-day FMP and a one-year FMP is in the offing, a fund official said.

"The volatility in interest rates has made people uncertain about returns and they are looking to tide over the interest rate volatility. And now that it looks like there is very little scope left for further hardening of interest rates, investors are looking towards FMPs," said Sandesh Kirkire, head of debt funds, Kotak Mahindra Mutual.

JM Mutual's head of fixed income, Nandkumar Surti agreed that investments in FMPs are a way of overriding interest rate volatility. Another factor working in favour of FMPs is their low expense ratio.

"FMPs do not churn their portfolio. Hence, there is very little fund management involved, which lowers their expense ratio. This keeps the institutional investors happy," Surti said.

However, Surti believes currently, the bond market looks good and short-term floating rate debt instruments appear better investment options.

Reliance Mutual, which has a series of FMPs lined up for launch, closed a 30-day FMP Monday, with a collection of nearly Rs 580 crore.

"Of all categories, the 30-day FMPs are most popular among investors," said Amitabh Chaturvedi, chief executive officer, Reliance Mutual. Funds normally launch 30, 60, 180 and 360-day maturity FMPs.

"Our 30-day FMP targets liquid fund investors capable of forgoing their liquidity for a one-month period. The FMP offers an investment avenue fetching returns 15-20 basis point above liquid funds," said Chaturvedi.

"Above all, the factor that has been working most for FMPs is that in an uncertain interest rate scenario, they attempt to give investors 'indicative' returns," said a senior fund industry official.