Fixed Maturity Plans (FMPs): Meaning, Features, Risks, and Taxation

A Fixed Maturity Plan (FMP) is a close-ended debt mutual fund designed around a defined maturity date. It generally invests in debt and money market instruments that mature on or before the scheme's maturity. Unlike a fixed deposit, an FMP does not guarantee your returns.

• FMPs have a predetermined maturity date.
• You generally invest during the scheme's NFO period.
• The underlying securities are generally held until maturity.
• Returns are not guaranteed and depend on the underlying securities.
• Credit, interest rate, and liquidity risks can affect your investment.
• Current tax rules can treat eligible FMPs as specified mutual funds under Section 50AA.

The Bajaj Broking website provides access to mutual fund investments, but you should review the individual scheme's documents, Riskometer, maturity, portfolio, and applicable tax treatment before investing.

A Fixed Maturity Plan, or FMP, is a close-ended mutual fund scheme that primarily invests in debt and money market instruments. The scheme has a predetermined maturity date, and its portfolio is generally structured around securities that mature on or before that date.

For example, an FMP with a three-year maturity may invest in debt securities with maturity dates that broadly match the scheme's tenure.

Unlike an open-ended mutual fund, an FMP does not allow investors to freely buy or redeem units from the fund throughout its life. Investment generally takes place during the New Fund Offer (NFO) period.

FMPs are debt mutual funds, so they are not risk-free. The underlying securities can be affected by credit events, interest rate movements, liquidity conditions, and other factors.

FMPs generally follow a buy-and-hold approach. The fund manager selects debt and money market instruments with maturity dates that are aligned with the scheme's maturity.

This structure can reduce the impact of interest-rate movements when securities are held until maturity. However, it does not eliminate market or credit risk, and it does not guarantee a particular return.

The indicative yield of the portfolio can give you an idea of the potential return at the time of investment. It should not be treated as a guaranteed return.

A practical example

Suppose Meera has Rs. 2 lakh that she expects to need after three years. She finds an FMP with a maturity date that broadly matches her investment timeline.

Before investing, she checks the scheme's maturity date, portfolio, credit quality, Riskometer, indicative yield, and exit provisions. She also understands that the indicative yield is not a promise of what she will receive.

This helps her assess whether the structure fits her requirement instead of choosing an FMP simply because its maturity period matches her timeline.

FMPs have several features that distinguish them from open-ended mutual funds.

• Close-ended structure: You generally invest during the NFO period, after which fresh subscriptions are closed.
• Fixed maturity: The scheme has a predetermined maturity date.
• Debt-focused portfolio: FMPs primarily invest in debt and money market instruments.
• Defined investment horizon: You generally need to plan to remain invested until maturity.
• Buy-and-hold approach: The portfolio is generally structured around securities maturing on or before the scheme's maturity date.
• No guaranteed return: The final return depends on the performance and repayment of the underlying securities.

SEBI's mutual fund statistics recorded 31 Fixed Term Plans under close-ended income/debt-oriented schemes as of 31 August 2026. This shows that FMPs continue to form part of India's mutual fund market, although the number of available schemes can change over time.

An FMP's defined maturity can be useful if you have a specific period for which you can keep your money invested. The structure can also reduce the effect of frequent portfolio changes compared with actively managed debt funds.

However, an FMP also has limitations. You generally cannot redeem units directly with the fund before maturity. If the units are listed, you may be able to sell them on a stock exchange, but a buyer may not be available when you want to sell, or the market price may differ from the NAV.

The fixed maturity also means you need to match the scheme's tenure with your own financial requirement. If you need the money earlier, an FMP may not provide the flexibility you need.

FMPs are debt mutual funds, but debt does not mean risk-free. Consider the following risks before investing:

• Credit risk: An issuer of a debt security may fail to pay interest or repay principal as expected.
• Interest rate risk: Changes in market interest rates can affect the value of debt securities before maturity.
• Liquidity risk: You may find it difficult to sell units before maturity if there is limited trading activity.
• Reinvestment risk: If market interest rates rise after the portfolio is created, newer investments may offer different yields.
• Return risk: The actual return can differ from what you expect, and mutual fund returns are not guaranteed.

Check the scheme's current Riskometer and other scheme-related documents before investing. The Riskometer uses six levels: Low, Low to Moderate, Moderate, Moderately High, High, and Very High.

FMPs and fixed deposits both have defined investment periods, but they are different financial products.

Neither product should be selected only because its stated return or maturity appears suitable. Consider liquidity, risk, tax treatment, and your financial goal.

The taxation of FMPs has changed, so older explanations about a three-year holding period and indexation should not be used for current investments.

Under Section 50AA, a specified mutual fund is defined, from 1 April 2026, to include a mutual fund that invests more than 65% of its total proceeds in debt and money market instruments, subject to the statutory conditions. Gains from units covered by Section 50AA are deemed to be short-term capital gains, regardless of the holding period, and are generally taxed at the investor's applicable income-tax rate.

This means that holding an eligible FMP for more than three years does not, by itself, provide the old indexation benefit described in earlier versions of this article.

Tax treatment can depend on the nature of the scheme, date of acquisition, and applicable tax provisions. Check the current tax rules and scheme documents before investing. The Bajaj Broking website should not be treated as providing personalised tax advice.

An FMP may be considered when you have a defined investment horizon and can keep your money invested until the scheme's maturity.

For example, you may have a financial requirement due around a particular date and find an FMP whose maturity broadly matches that period. Even then, you should review the scheme's portfolio, credit quality, Riskometer, indicative yield, expenses, and liquidity provisions.

An FMP may be less suitable if you need regular access to your money or require guaranteed returns. Before investing, compare the product with other options based on your own financial requirements.

You can explore eligible mutual fund schemes through the Bajaj Broking website after completing the required KYC process.