Nippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO – Should you invest?

Nippon India Fixed Horizon Fund - XLII - Series 1 (1207 Days) NFO ReviewNippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO Review

Nippon India AMC (formerly Reliance Mutual Funds) has come up with Fixed Horizon Fund (FHF) Series 1 (1207 Days) NFO that would open for subscription on 27th January, 2020. As the name indicates, this is fixed maturity plan that gets matured on a specific date. Many experts keep recommending to invest in fixed maturity plans that provide stable returns along with short term maturity. Should you invest in Nippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO? What are the risk factors an investor should consider before investing in such fixed maturity plan schemes?

Also Read: Best Largecap Funds to invest in 2020

Benefits of Fixed Maturity Plans (FMP)

Fixed Horizon Fund, commonly called as Fixe d Maturity Plan (FMP) matures on a specific date. Let us see the benefits of FMPs.

Benefits of Fixed Maturity Plans (FMP)

Issue details of Nippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO

This is close-ended mutual fund scheme. Means you can subscribe only during the period for which it would open and not later on.

This scheme would open for subscription on 27th January, 2020.

This scheme would close for subscription on 29th January, 2020.

This scheme is available in both regular and direct plans.

This plan offers both growth option and dividend option.

This scheme is available only for lump sum investment.

Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.

The NAV of the NFO is Rs 10 per unit now during initial subscription.

There is no entry load to invest in this mutual fund scheme.

There is no exit load on this mutual fund scheme.

This scheme is classified as moderate risk scheme.

Scheme total expense ratio (TER) is estimated at a maximum of 1% of the total assets on any day. There is additional 0.3% expenses that would be spent on gross new flows in specified cities.

You can download FMP Fund details at this link.

Who can invest in this mutual fund scheme?

Any of the following can invest in this scheme.

1) Resident Individuals

2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,

3) NRI’s

4) Foreign Portfolio Investors

Who is the Fund Manager of Nippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO?

The Fund Manager is Mr.Amit Tripathi.

What is the benchmark for this scheme?

The benchmark for this scheme is Crisil Composite Bond Fund Index.

What is the investment objective and strategy of this Nippon India Fixed Horizon Fund – XLII – Series 1 NFO?

The primary investment objective of the scheme is to seek to generate returns and growth of capital by investing in a diversified portfolio of the following securities maturing on or before the date of maturity of the scheme with the objective of limiting interest rate volatility –

i) Central and State Government securities and

ii) Other fixed income/ debt securities

However, there can be no assurance or guarantee that the investment objective of the scheme will be achieved.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

1) It invests 0% to 10% in money market instruments. The risk profile in this segment is low.

2) It invests 90% to 100% in Government Securties/state development loans (SDLs) and Debt instruments. The risk profile in this segment is Medium to low.

Can NRI invest in this MF scheme?

Yes, they can invest in this scheme. They can invest on repatriation or non repatriation basis.

Why should you invest in this Fixed Maturity Plan (FMP) Scheme?

Here are few reasons to invest in this FMP.

1) This FMP invests 90%+ in government securities and it is a safe bet.

2) This FMP invests in fixed income securities that has potential to generate higher returns compared to bank FDs or other FD options.

3) You would know the approx. returns if you invest in FMP. As per SEBI direction, AMC or brokers are not supposed to provide indicative returns of the mutual fund scheme, hence this info is not available in prospectus. However, one can assume 6% (lower end) to 8% (higher end) annualized returns on such FMPs though not guaranteed.

4) This scheme has fixed maturity after 1207 days, which is approx. 3.3 years, which is good for short term investors.

4) You can sell them on BSE before maturity, hence it provides liquidity options for investors.

5) There is no entry or exit load on this FMP scheme.

6) Investors in the 30 % tax bracket can lock their money for at least three years as returns on maturity qualify for long-term capital gains tax with indexation. The indexation benefit on such FMP would bring down the tax rate to single digit.

Some key risk factors you should consider before you invest in such small cap funds

One should consider some of these risk factors / negative factors before investing.

1) This FMP invests in debt instruments of corporates upto 10%. Investments in corporate debt instruments have become high risk these days post NBFC crisis.

2) This scheme invests in corporate debts and in case of a downgrade of ratings of such corporates, mutual fund AMC has to write-off / side pocket the amount. In such case, one can see a fall in NAV.

3) Scheme invests in debt instruments and money market instruments where there is interest rate risk. There are various factors like government borrowing, inflation, economic performance due to which interest rates can fluctuate (fall or rise).

4) FMP’s generally good if you hold for the entire duration of the fund till it matures. If you want to redeem early by selling on stock exchanges, you might get lower returns.

5) Investors should not assume any guaranteed returns from such FMPs.

6) Since it is a new mutual fund scheme, there is no past performance, hence we would know how the fund would perform in the future.

7) Other risk factors can be checked in the NFO Scheme Information document.

How the returns from Fixed Maturity Plans are taxed?

If you held these FMPs for less than three years and sold on stock exchanges, the proceeds from FMPs are added to the income and taxed as per the income tax slab applicable to the investor. If investments are held for more than three years (or till maturity), the returns are taxed at 20% with the indexation benefit.

You may like: Top Debt Mutual Funds to invest in India in 2020

Should you invest in the Nippon India Fixed Horizon Fund – XLII – Series 1 (1207 Days) NFO?

Investment in Nippon India FMP for 1207 days series-1 is good for high tax bracket individuals where the post tax returns could be higher. It invests in government secures where it is a safe bet. One should note that it still invests some amount in other debt instruments. However the returns are NOT guaranteed. There are several corporates whose credit ratings are being downgraded month on month. Since this FMP invests majorly in Government securities and upto 10% in corporate debt instruments, it is safe game. High tax bracket individuals can invest in this scheme to get higher post tax returns. Low tax bracket individuals can give a try, but may not get higher post tax returns.

If you like this article, please share this on your Facebook or Twitter. This would be a special gift which you would be giving to our blog.

Suresh KP

Nippon India Fixed Horizon Fund – XLII – Series 1 Review

Suresh KP

2 comments

  • Babu

    Ji,
    Can I switch my fund (15L) from FD to this NFO? is it safe? can I get better return?

    • Hello, This fund invests in government securities and is safer unless you want to redeem earlier than the maturity period (where you need to sell at market price in stock exchange). However you need to check how much you are getting in your FD vs here. You can get 6% to 8% depending on the securities that this MF invests. If you are in high tax bracket, this could be definitely best bet. But if you are in low tax bracket, you might check post tax returns and invest

Leave a Reply

Your email address will not be published. Required fields are marked *