Posts Tagged: ‘FD’

Fixed Maturity Plan – Mutual Fund Investment!

February 15, 2015 Posted by admin

FMPs are the equivalent of a fixed deposit schemes, with a little difference that The FMP’s returns are only indicated and not �guaranteed’, Since the fund house knows the interest rate that it will earn on its investments, it can provide �indicative returns’ to investors. FMPs are debt schemes, where the corpus is invested in fixed-income securities. The tenure can be of different maturities, from one month to three years. They are closed-ended in nature, which means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment. These FMP NFOs are generally open for 2 to 3 days and are marketed to corporate and well-heeled, high net-worth individuals. Nevertheless, the minimum investment is usually Rs 5,000 and so a retail investor can comfortably invest too. The actual return can vary slightly, if at all, from the indicated return. Against that, a bank fixed deposit exactly prints the amount which is due to you on maturity on the FD receipt. However, FMPs do earn better returns than fixed deposits of similar tenure.

Key Benefits of FMPs

There are several benefits of the FMPs which make them a lucrative option available in the market. The most important advantage of the FMPs is that for tax purpose they are treated at par with fixed deposits. Since they are basically debt funds they also enjoy all the benefits of the debt funds in terms of short terms capital gains as well as long term capital gains. For the short term capital gains, the income from FMDs as in the case of any debt oriented fund is added to the annual income and the taxation is done as income tax. In case of the long term capital gains, the income from FMPs, as in the case of all debt oriented funds, is taxed as the higher among the two – 10% without indexation and 20 per cent with indexation.

Comparing the FMPs with Bank Fixed Deposits

In order to understand the basic advantages of investing in fixed maturity plans as against conventional bank fixed deposits we will have to compare the returns from both these instruments both pre tax as well as post tax. Assuming an initial investment of Rs. 10000/-, let us study the variations in returns in different options.

In this table the various tax implications in different schemes of FMPs as compared to the tax implication in a bank fixed deposit is illustrated on an initial investment of Rs. 10000/- with a interest rate of 10%. Important derivations from the above table of comparison are as follows:

� The net returns from FMPs far exceed that by any bank fixed deposit.

� The dividend option is better when buying FMPs for less than a year.

� The growth option is better when buying FMP for more than a year.

� Maximum double indexation benefit can be achieved by buying a FMP towards the very end of a financial year which is eligible for redemption at the commencement of a future financial year.

Benefits of Mutual Fund Investments

November 11, 2014 Posted by admin

Investing in mutual funds has become a common practice amongst many investors. Investing in these funds is all about calculative approach which is looked after by fund managers. The professional management and systematic approach brings in additional benefits to mutual funds, below mentioned are a few of them.

Diversification: In order to grow and expand the gains, a financial portfolio needs to be diversified. Sticking to the traditional investment options will only bring in limited returns. When an investor opts for this investment there is immense scope for him to multiply his returns over a period of time. There isn’t any stagnancy in these funds. This investments are smartly done wherein the focus is always kept on dividing the risks and not putting all the capital in just one company. So if you decide to invest in the real estate sector your mutual fund manager will purchase securities of two or more companies. Thus the risk is not attached to a single company and even the gains you would receive would vary depending upon the profits respectively.

Commitment free: Investment in mutual funds is most of the times free from lock-in period. They can be liquefied at any point of time, so if the investor feels he isn’t making enough money out of a particular fund investment he can choose to sell it off. This is however not possible in case of options like fixed deposits, insurance plans etc. When a financial emergency arises withdrawing FD fund or discontinuing an insurance plan will prove to be of no benefit to you and will also make your future plans tumble, with the flexibility of mutual funds this will not happen.

Professional management: With mutual funds there is always a dedicated fund manager who is dealing with your money wisely. All the calculations and allocation of your money is looked after by him so that you are not left alone to decide where to put your money. Since fund managers are experts, they analyze the markets well and then come to conclusions about where their clients should invest in. Be it a sector altogether or a particular company, their research is vast and in depth which investors cannot do themselves.

Mutual fund investment thus will give you no reason to worry about your funds. The well analyzed and calculative approach taken by fund managers, immense scope for diversification and liquidity they come along with are prime reasons for their popularity. Not just this, the returns on mutual funds can be good if the correct choices are made and as there are a lot of divisions made, the risks are got down to a high extent. If you haven’t invested in it, now is the right time to begin and reap the benefits.