FMPs, if held till maturity, will always give you the return that is mentioned as indicative. Regulations prohibit AMCs from assuring the yield, unlike bank deposits. But, since the instruments bought by the fund manager are for a tenure equal to that of the FMP, the return will be the same as what is mentioned as indicative. Moreover, FMPs (even with 20% tax rate with indexation) are most tax-efficient than bank deposits with 30% tax rate and hence offer superior post-tax return. To match the post-tax return of most current FMPs, you will need to invest in bank deposits that offer over 11% pre-tax yield-a rate no bank is offering at present. The only risk you are exposed to, if you are investing in FMPs, is the credit/default risk of the issuer of the instruments your money is invested in, which can be ignored, since investments are mostly made in securities with high ratings and are hence highly unlikely to default. Except for a 5-year horizon, where FDs provide a tax break for the depositor, FMPs are the more prudent choice for for all other investment horizons.
Re: FMPs-Much better than FDs
by sumit on Sep 04, 2014 11:32 AM
does this tax regime apply to NRIs too? Like I am a NRI and want to invest in FMPs..till now I have only done FDs strictly, but looking to go to FMPs as, as you suggest these r equally good alternatives. More info on tax regime for NRIs please. and u also mentioned except for 5 yrs tenure where FDs provide a tax break. plz explain this in respect to how it applies to a NRI and NRE money
