FMP exit to be made tougher

Ending widespread speculation, the Securities and Exchange Board of India (Sebi) today confirmed that it will make early withdrawals from Fixed Maturity Plans (FMPs) tougher, a move that is expected to solve mutual funds’ liquidity problems. At present, investors can exit FMPs by paying 2 per cent of the net asset value (NAV) at any point of time. Sebi sources confirmed that new FMP schemes will have clauses that make withdrawals before maturity difficult.

Sebi had sought FMP data from fund houses last month on their investment and redemption patterns. There are also expectations that the market regulator would limit exposure to a single sector. Earlier, there was news that some funds were forced to roll over their schemes because some companies, especially in the realty and non-banking financial companies (NBFCs), had defaulted on their commitments.

Investors said such a move could make FMPs unattractive because it will make them less liquid. In the past three years, FMPs were doing fairly well because the interest rate was on the rise. Some schemes were even offering up to 12 per cent last month.

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