Fixed Maturity Plan (FMP)

How an FMP works

A Fixed Maturity Plan is a closed-ended debt mutual fund with a fixed tenure — say three years. It collects money during a short subscription window, then buys bonds and other debt instruments that mature around the same date the fund itself closes. Because the underlying bonds are largely held to maturity, an FMP behaves a bit like a debt fund version of a fixed deposit: you get a reasonably predictable return and far less interest-rate volatility than an open-ended bond fund, since you are not buying and selling at fluctuating market prices.

The big tax change

FMPs were historically popular for one reason above all: tax. For units bought *before* 1 April 2023 and held more than 36 months, gains were treated as long-term and taxed at 20% with indexation — far better than a bank FD, whose interest is taxed at your full slab rate. Savvy investors used "double indexation," timing a roughly three-year-and-one-month plan to straddle four financial years and maximise the inflation adjustment.

That edge is largely gone. For debt funds, including FMPs, purchased on or after 1 April 2023, all gains are taxed at your income-tax slab rate regardless of how long you hold them. Indexation no longer applies to these new investments. (The older treatment still applies to units bought before that date.)

FMP versus fixed deposit today

With the tax advantage erased for new money, the comparison with a bank FD is now much closer. Both are taxed at your slab rate. What an FMP still offers is potential exposure to higher-yielding corporate bonds and a closed structure that discourages premature withdrawal — but it also carries credit risk and, being listed but thinly traded, limited liquidity before maturity.

The bottom line

An FMP suits an investor who wants a defined-tenure, relatively predictable debt return and can lock money away. After the 2023 rules, choose it for the portfolio fit and yield, not for a tax break that no longer exists.