L&T Fixed Maturity Plan – Series XX (1471 days) – A review
L&T Mutual funds AMC has come up with another Fixed Maturity Plan (FMP) Series XX (Plan-A) NFO which is for 1471 days that would open for subscription on October 27, 2020. As the name indicates, this is fixed maturity plan that gets matured on a specific date. Many experts keep recommending to invest in FMPs which provide higher returns than fixed deposits. Who can invest in L&T Fixed Maturity Plan – Series XX (1471 Days) NFO? What are the risk factors an investor should consider before investing in such fixed maturity plan schemes?
What are Fixed Maturity Plans (FMP)?
Fixed maturity plans in mutual funds would have specific maturity date. These would generaly invest in debt instruments that would match with the scheme duration. FMPs are considered to provide stable returns that are higher than bank fixed deposits.
Issue details of L&T Fixed Maturity Plan – Series XX (1471 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. Here are the NFO issue details.
|L&T Fixed Maturity Plan – Series XX – 1471 Days – NFO issue details|
|Minimum investment (Lumpsump)||Rs 5,000|
|NAV of the fund||Rs 10 during NFO period|
|Max Total expense Ratio (TER)||2.25%|
|Benchmark||CRISIL Composite Bond Fund Index|
|Fund Manager||Jalpan Shah|
Download SID here
What is the investment objective of L&T Fixed Maturity Plan – Series XX NFO?
The investment objective is to achieve growth of capital through investments made in a basket of debt/ fixed income securities, (including money market instruments), government securities andstate development loans (SDLs) maturing on or before the maturity of the plan under the Scheme.
However, there can be no assurance or guarantee that the investment objective of the Scheme would be achieved.
What is the allocation pattern in this mutual fund scheme?
This fund investment pattern is as follows:
|Type of instruments||Allocation %||Risk Profile|
|Debt Instruments, Government securities, State Development
|90% to 100%||Low to medium|
|Money Market instruments||0% to 10%||Low to Medium|
Why to invest in this Fixed Maturity Plan (FMP) Scheme?
Here are few reasons to invest in this FMP.
1) FMPs invest in debt instruments that matches with the duration of the fund and has potential to generate higher returns compared to bank FDs.
2) You would know the approx. returns if you invest in FMP. Currently this FMP invests in corporate debt instruments + government securities where the yield works out in between 6% to 7.9%. Means one can expect the returns from this FMP in this range.
3) This scheme has fixed maturity after 1471 Days which is 4 years and 10 days which is good for medium term investors.
4) You can sell them on BSE before maturity (provided there are buyers), hence it provides liquidity option to investors.
5) There is no entry or exit load on this FMP scheme.
6) Investors in 30% tax bracket can lock their money for at least 4 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 funds
One should consider some of these risk factors / negative factors before investing.
1) This FMP invests in AAA and AA rated debt instruments of corporates and also in government securities. While investments in government securities are safe, 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 downgrade of ratings of such corporates, mutual fund AMC has to write-off / side pocket the amount. In such case, one can see 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 entire duration of the scheme. 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 sell 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.
Who can invest in the L&T Fixed Maturity Plan – Series XX (1471 Days) NFO?
Investment in L&T Mutual funds FMP for 1471 Days series is good for high tax bracket individuals where the post tax returns could be higher. However the returns are NOT guaranteed. This FMP invests in AAA and AA rated corporate debt instruments and also in government securities. There are several corporates whose credit ratings are being downgraded month on month. One should consider such risks. Moderate risk takers who are in high tax bracket can invest in such schemes to get higher post tax returns. Others / low risk takers can invest their money in some of the best fixed deposit schemes that are offering upto 7% interest per annum.
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