Where to invest in rising interest rate scenario?
Where to invest in rising interest rate scenario?
Fixed Maturity Plans (FMP’s) provide investors with a good alternative
to fixed deposits given that they are More Tax Efficient”. This is
especially so during volatile times when investors are likely to be
more risk averse.” These schemes are close-ended debt scheme with an
objective to seek to generate reasonable returns and reduce interest
rate volatility primarily through investment in money market and short
term debt instruments with a maturity profile generally in line with
the Plan’s duration. Fixed Maturity Plans (FMPs)
If an investor has surplus amount to invest, knows the time horizon
and wanted to deploy the fund efficiently with least risk of capital &
return, but wishes to optimize her investment – Fixed Maturity Plan is
the right scheme. Though the returns are not assured, he may expect
the prevailing market rates with least risk. Why FMP??
Fixed Tenure: The tenure of FMP is fixed making investing easier for
the fund manager. Superior returns: FMP’s invest mainly in rated debt instruments where
returns*may be higher, an attractive option for risk-averse investors.
Low risk: Historically, very few AAA corporate bonds have been
downgraded to default level (BBB) so there is limited credit risk.
FMPs primarily invest in AA and above rated debt papers which lowers
credit risk. Lower expenses: Generally expenses ratio charged to FMPs is lower. Benefits of FMP Protection from “Interest rate risk” Rise in interest rates in the economy reduces the NAV of the income
fund and vice-versa.
FMPs mitigate this risk by using a specific investment strategy
whereby they invest in instruments that mature in line with the
maturity of the FMP. Conclusion:
FMPs eliminate the interest rate risk. Pre-mature withdrawal shall
attract exit load. However even bank deposit attract penalty for
premature withdrawal. In the current market volatility one can be safe
and do not lose sleep in choosing FMPs. With little more planning
staggered FMPs shall be more suited for those who plan expenditure. Please find below the launch schedule for the upcoming FMP's HDFC FMP 370D March 2011 (3)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday) HDFC FMP 182D March 2011 (1)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday)
HDFC FMP 370D March 2011 (4)
Opening Date - 17th March 2011 (Thursday)
Closing Date - 23rd March 2011 (Wednesday)
HDFC FMP 370D March 2011 (5)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 28th March 2011 (Monday)
HDFC FMP 100D March 2011 (3)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 24th March 2011 (Thursday)
HDFC FMP 182D April 2011 (1)
Opening Date - 5th April 2011 (Tuesday)
Closing Date - 7th April 2011 (Thursday)
Fixed Maturity Plans (FMP’s) provide investors with a good alternative
to fixed deposits given that they are More Tax Efficient”. This is
especially so during volatile times when investors are likely to be
more risk averse.” These schemes are close-ended debt scheme with an
objective to seek to generate reasonable returns and reduce interest
rate volatility primarily through investment in money market and short
term debt instruments with a maturity profile generally in line with
the Plan’s duration. Fixed Maturity Plans (FMPs)
If an investor has surplus amount to invest, knows the time horizon
and wanted to deploy the fund efficiently with least risk of capital &
return, but wishes to optimize her investment – Fixed Maturity Plan is
the right scheme. Though the returns are not assured, he may expect
the prevailing market rates with least risk. Why FMP??
Fixed Tenure: The tenure of FMP is fixed making investing easier for
the fund manager. Superior returns: FMP’s invest mainly in rated debt instruments where
returns*may be higher, an attractive option for risk-averse investors.
Low risk: Historically, very few AAA corporate bonds have been
downgraded to default level (BBB) so there is limited credit risk.
FMPs primarily invest in AA and above rated debt papers which lowers
credit risk. Lower expenses: Generally expenses ratio charged to FMPs is lower. Benefits of FMP Protection from “Interest rate risk” Rise in interest rates in the economy reduces the NAV of the income
fund and vice-versa.
FMPs mitigate this risk by using a specific investment strategy
whereby they invest in instruments that mature in line with the
maturity of the FMP. Conclusion:
FMPs eliminate the interest rate risk. Pre-mature withdrawal shall
attract exit load. However even bank deposit attract penalty for
premature withdrawal. In the current market volatility one can be safe
and do not lose sleep in choosing FMPs. With little more planning
staggered FMPs shall be more suited for those who plan expenditure. Please find below the launch schedule for the upcoming FMP's HDFC FMP 370D March 2011 (3)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday) HDFC FMP 182D March 2011 (1)
Opening Date - 15th March 2011 (Tuesday)
Closing Date - 16th March 2011 (Wednesday)
HDFC FMP 370D March 2011 (4)
Opening Date - 17th March 2011 (Thursday)
Closing Date - 23rd March 2011 (Wednesday)
HDFC FMP 370D March 2011 (5)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 28th March 2011 (Monday)
HDFC FMP 100D March 2011 (3)
Opening Date - 22nd March 2011 (Tuesday)
Closing Date - 24th March 2011 (Thursday)
HDFC FMP 182D April 2011 (1)
Opening Date - 5th April 2011 (Tuesday)
Closing Date - 7th April 2011 (Thursday)
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