Wealth managers and distributors are advising clients to invest in one-year fixed maturity plans (FMPs), as they feel short-term rates are attractive. FMPs primarily invest in certificates of deposits (CDs), the rates of which stand at 9.6 per cent, 100-120 basis points higher than last month.
Prateek Pant, director (products and services-private banking), RBS, says this is a good time to avail of the recent rise in CD interest rates. "FMPs are more tax-efficient than bank FDs (fixed deposits) with similar underlying," he said.
Ramanathan K, chief investment officer at ING Investments India, said higher corporate bonds rates made FMPs a good investment option.
Since FMPs are closed-ended funds, it is possible to invest only when a new FMP is launched.
Due to the squeeze on liquidity, short-term rates might remain high in the near term. However, with an impending slowdown in the economy and instability in the rupee, there could be relaxation from the central bank. This, would lead to a fall in short-term rates in the medium term, Pant added.
Nishant Agarwal of ASK Wealth Advisors says it is advisable to lock into one-year FMPs, not those for longer periods. "The yields are at levels seen in February and March and, therefore, it is a good time to lock into these now," he said.
While FMPs typically draw investors during the March-April period as a tax-saving measure, investing in FMPs allows investors to adjust returns against inflation and benefit from inflation indexation.