Opt for FMPs to improve your retirement portfolio

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You play safe for your retirement plan. Also invest your corpus in fixed income. FMP is mutual fund product. It is close ended debt scheme with fixed maturity date. This is safe investing option in your retirement. Like Bank fixed deposits and mutual fund fixed maturity plan (FMP). FMPs are best instrument. Aim of these plans is to provide most returns at small risk. So before investing it is better to understand two instruments in simple way

Fixed Deposits

Fixed deposit means sum of money deposited for specific period. And deposit amount get locked for specific term. Also, you can withdraw your money before for any urgency. But for that you need to pay premature withdrawal charges.

Rate of interest offer under this debt category is fixed. Thus it is high than savings account interest rate. Fixed deposits offer safe and assure returns. They are most popular savings instruments in India. Interest is paid month, quarter, half-year or annual with reinvest interest income option.

You can gain compound benefit. Now a day you can do online without any paperwork or signatures.  With few clicks you can compare FDs, transfer fund without bank visit. Check TIP, MIP, SIP gives you’re safe and secure for retire life

Fixed Maturity Plans

FMPs are mutual fund product.  And FMP are close ended debt schemes with fix maturity date. FMPs invest in debt products. Like corporate bonds and various money market and commercial products. These plans provide earning from market value of investments. Basic rule in FMP is to park money in instruments that has similar maturity date.

It helps to diversify investments across fixed deposits portfolio. As they offer by mutual fund companies. They have advantage of investing in fixed income instruments. This may not be available to individual retail investor. You need to keep in mind while investing in FMPs. That portfolio will spread across instruments that mature at same time. Other factors will help you to understand two.

Liquidity

FMPs are like FDs in some aspects. Both of them have fixed maturity period and same level of liquidity.FMP is best till maturity. But you have an option to exit at any point in all FMPs.  You can exit an FD with less damage. But in case of FMP you have to pay heavy exit load. So ensure that you do not need funds for certain period before park your funds in FMPs.

Risk

Fixed maturity plans have high risk compare to fixed deposits. Also there is no guarantee. But money is safe while opting for FMP. There is some extent of risk in investment option. That mean FMPs are very risky than FDs. In case of bank fixed deposits are safe instrument. And bank FDs has insurance cover up to Rs 1 lakh on your deposit.

Returns

Due to close end debt MF schemes there are no guarantee return. Depend on deposit tenure banks and FD company offer 6-9 per cent returns.  FMP offer an average return of around 8-9 per cent. There can be other external factors which can affect return.

This will be base earning for your which do not involve income tax factor. Also, it note that interest rates may change due to external factors. But once you are invest in scheme rate is assure. See SIP way to financial freedom

Taxation

FMPs which have maturity term of less than one year.  Any return on these is add to total income for tax calculates. And it get calculate as per slab you falls in. For long term which is more than 3 years. FMPs get advantage of index benefit.

This index benefit helps you to pay tax only on real gains which they made in course of time. Based on index benefit tax liability is charge at 20 per cent plus surcharge. But in FD, tax calculate is very simple. There is no short term and long term investment. Whatever interest you receive from fixed deposit scheme get added to total income.

And tax is calculate and deduct as per tax slab in which you falls. Also, if interest income earned from all bank FDs is less than Rs. 10,000 a year. Then in such case bank do not deduct any tax. Also, no tax is deduct in case of housewife or senior citizen.  Both instruments are better for you. You need to understand risk appetite and tolerance capacity before taking any decisions.

FMPs are good when you have moderate investment horizon. Mutual fund investments are subject to market risks. Also see FMPs vs. Open ended funds comparison. You can check best fixed maturity plans. For more details see FMP return comparison.

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