How is a Fixed Deposit (FD) better than Fixed Maturity Plan (FMP) - Financing Panda: Latest News on Finance, Loan, Business


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Saturday, February 1, 2020

How is a Fixed Deposit (FD) better than Fixed Maturity Plan (FMP)

When it comes to investment options, we Indians tend to trust more on a fixed deposit scheme by a bank or a non-banking finance company (NBFC). It’s because the rate of interest on an FD is not only higher, it also gives a sure-shot return on investments. 
As compared to other available financial products such as mutual funds, stocks, bonds, equities and more, fixed deposit plans are more viable option than others.

However, at the current rate of inflation, the interest payouts of the FDs are not enough to keep you prepared for rainy day situations. In the same context, investing in fixed maturity plans or FMPs are profitable to help you save during inflation as they offer up to 10-11% interest per annum.   
But, after having said that, is a fixed maturity plan better than a fixed deposit when it comes to features and benefits? Let’s discuss!
  1. Safety of capital 
Talking about safety, fixed deposits have the edge over fixed maturity plans. Yes, the principal and the interest figure are completely safe in a fixed deposit plan. Even though fixed maturity plans have been altered several times to make them safer for investing by Securities and Exchange Board of India (SEBI). But, still they have some interest rate risk and credit risk. If the deposit in which the FMP has invested defaults, then your ROI on FMP will also be impacted. 
  1. Return on investments (ROI) 
No matter what happens in the market, the return on investments for a fixed deposit account remains unaffected and unchanged. It means that your investment surely gets you some decent payouts over a tenor mean you could feel free. This is not the case with fixed maturity plans as their ROIs could be affected if the deposit in which it was kept defaults. Thus, a fixed deposit scheme is a profitable option as compared to the fixed maturity plans.

  1. Liquidity 
Fixed deposits are highly liquid as you can always break them before maturity at the time of an emergency to cover your financial needs. Even though you have to pay some penalty to withdraw your FDs before maturity, you could still use the amount to your advantage. It’s better to have some money on hand than not having anything. On the other hand, if you talk about the liquidity option of the fixed maturity plans, you should note that they can’t be redeemed before their maturity. 
  1. Ease of investment 
You are free to invest on any day as per your wish in a fixed deposit plan which is open to investment 24/7 and on all 365 days. On the other hand, a fixed maturity plan investment can’t be done as per your wish and as per your convenience. In case of a fixed maturity plan investment, it can only be done during a new fund offer period as they are close-ended mutual funds. Also, the tenor of a fixed deposit investment is available all the time, but it is not the case always with the fixed maturity plan as its tenor may not be available always. 
The Bottom Line

From the above discussion, it’s clear that a fixed deposit is for investors who want a sure-shot ROI and also safety. On the other hand, if you could avail a little bit of risk, you can go for fixed maturity plan and avail a better interest based profits compared to FDs. Thus, you should assess your needs and accordingly plan an investment option! Good luck! 

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