Nippon India Fixed Horizon Fund – XLII – Series 7 – Who can invest?

Nippon India Fixed Horizon Fund - XLII - Series 7 – Who can investNippon India Fixed Horizon Fund – XLII – Series 7 – A review

Nippon India Mutual funds have come up with Fixed Horizon Fund (FHF) XLII Series 7 NFO, which is for 1869 days that would open for subscription on November 4, 2020. This is a close ended fund that gets matured on a specific date. Many experts keep recommending to invest in Fixed maturity plans (FMPs) which provide higher returns than fixed deposits. Who can invest in Nippon India Fixed Horizon Fund – XLII Series 7 (1869 Days) NFO? What are the risk factors an investor should consider before investing in such fixed maturity plan schemes?

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What are Fixed Maturity Plans (FMPs)?

Fixed maturity plans in mutual funds would have a specific maturity date. These would generally invest in debt instruments that would match with the scheme’s duration. FMPs would provide stable returns that are higher than bank fixed deposits.

Nippon India Fixed Horizon Fund – XLII Series 7 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.

Nippon India Fixed Horizon Fund – XLII – Series 7 – Issue Details
Scheme Opens 04-Nov-20
Scheme Closes 09-Nov-20
Minimum investment (Lumpsump) Rs 5,000
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Moderate
Max Total expense Ratio (TER) 1.00%
Benchmark CRISIL Composite Bond Fund Index
Fund Manager Mr. Amit Tripathi

Download SID here

What is the investment objective of Nippon India Fixed Horizon Fund – XLII Series 7 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:

Central and State Government securities and

Other fixed income/ debt securities

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

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What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Allocation % Risk Profile
Government securities / State Development Loans (SDLs) & Debt Instruments 90% to 100% Medium to low
Money Market instruments 0% to 10% Low

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

Here are the 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) This scheme would invest up to 35% in government securities and balance in AAA rated NCDs / bonds of corporates which are relatively safe investment options.

3) You would know the approximate returns if you invest in FMP. Currently this FMP invests in corporate debt instruments + government securities where the yield works out in between 5.5% to 6.5% (though not guaranteed). Means one can expect the returns from this FMP in this range.

4) This scheme has fixed maturity at 1869 Days (5 years and 44 days) which is good for medium term investors.

5) You can sell them on BSE before maturity (provided there are buyers), hence it provides liquidity options for investors.

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

7) Investors in the 30 % tax bracket can lock their money for 5 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 in such funds.

1) This scheme invests in AAA rated corporate debt instruments. 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.

2) 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).

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

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

5) 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.

6) Other risk factors can be checked in the NFO SID (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 individual 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 Nippon India Fixed Horizon Fund – XLII Series 7 NFO?

Nippon India Fixed Horizon Fund XLII Series 7 invests in government securities and AAA rated corporate debt instruments. However the returns are NOT guaranteed. There are several corporates whose credit ratings are being downgraded over a period of time. One should consider all these risks. Moderate risk takers who are in the 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 up to 7% interest per annum.

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Suresh KP

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