TATA Mutual Fund

FMP
FIXED MATURITY PLAN

FMP Vs. FD By Prof. Simply Simple

A common feature of both FMPs (Fixed Maturity Plans) and FDs
(Fixed Deposits) is that investors know in advance how much
return they will earn on maturity
The difference here is that while the returns on FDs are
assured, returns on FMPs are indicative
FMPs are actually close-ended debt funds with fixed maturity
offering an indicative yield. The keyword here is indicative
That means, on maturity there is a possibility of actual returns
deviating from indicative returns
On the other hand, returns are guaranteed by an FD and
investors are assured of receiving the same on maturity
(assuming there is no default in payment of principal amount
and interest)

Why do FMP yields vary?

FMP yields do not normally vary by a significant margin
For the same tenure, the yields on debt instruments
(with comparable credit ratings) are usually in a range,
which is why FMPs of similar tenure have comparable
yields
The difference in yields between two FMPs arises out of
the risk taken on in the portfolio a FMP having top
rated instruments in its portfolio would deliver
comparatively less than a FMP with lower rated papers
Higher return means that the fund manager has been
taking on more credit risk in the portfolio

Varying tax treatment

The tax treatment on interest income for both FMPs and FDs are
different

Interest income from FDs is added to the investors income and is

taxable at the applicable tax slab for that investor. Interest from FDs is
categorized as Income from other sources under Income Tax laws

In the case of FMPs, tax implication depends on the investment option

Dividend or Growth.

In Dividend option, investors have to bear dividend distribution tax ,

whereas in the Growth option returns earned are treated as capital
gains (short-term or long-term depending on tenure of investment)

Due to indexation benefit, FMPs end up becoming more tax efficient

than a FD as indexation lowers tax liability (Indexation was covered in
an earlier series)

Taxation in Debt Schemes

DEBT (FMP Included)

Growth Option
(No TDS)

Dividend Option (Tax Free in

the hands of Investors, But
DDT Applied on MF)
Long Term
Capital Gain
Individual/HUF
(DDT is
14.1625%)

Corporates
(DDT is
22.66%)

With Indexation
(20% + Applicable
surcharge &
Education Cess,
after adjusting
Indexed Cost of
Acquisition)

Without
Indexation
(10% Flat on
appreciated
Amount)

**DDT (Dividend Distribution Tax,

In the hands of MF)

Short Term
Capital Gain
(Added to
your income
and taxed
accordingly)

FMP DETAILS
Illustration
NFO opening

01-August-2008

NFO closing

12-August-2008

Issue Price
Date of Allotment
Maturity Date

Rs. 10
Not later than 18-August-2008
24-08-2009 (assuming above allotment
date)

Options Available

Regular / Institutional Plan

Growth Option & Dividend Option.

Minimum Amount

Rs 10,000/- ( Retail)
Rs. 25,00,000/- (Institutional)

Tenor of the FMP

13 Months

Entry Load

NIL

Exit Load

1.00 % if redeem before maturity

Indicative Portfolio
SECURITY NAME

Rating

STATE BANK OF INDIA and ASSOCIATES

P1+

PUNJAB NATIONAL BANK

P1+

CANARA BANK

P1+

CORPORATION BANK

P1+

ICICI BANK

P1+

HDFC BANK

P1+

OREINTAL BANK COMMERCE

P1+

IDFC

P1+ / AAA

LIC HOUSING FINANCE LTD

P1+ / AAA

HDFC LTD

P1+ / AAA

CHOLAMANDALAM FINANCE LTD

AA

EXIM

P1+ / AAA

IDBI BANK

P1+

PFC

P1+ / AAA

NABARD

P1+ / AAA

POWER GRID CORPORATION

P1+ / AAA

ICICI HOME FINANCE

P1+ / AAA

IRFC

A1+ / AAA

SUNDARAM FINANCE

A1+ / AA+

MAHINDRA & MAHINDRA LTD.

AA+

MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD

AA+

ALLAHABAD BANK

A1+

CP, NCD'S , CD'S

Indicative Returns for dividend options

Indicative Returns for growth options

Indexation at
9.5%
inflation

Indexation at
10.0%
inflation

Indexation at
10.5%
inflation

Indexation at
11.0%
inflation

Maturity in Months

13

13

13

13

Investment Value

100

100

100

100

Post expenses Yield

9.75%

9.75%

9.75%

9.75%

Repurchase Value

110.56

110.56

110.56

110.56

Gain

10.56

10.56

10.56

10.56

Indexed Cost

109.50

110.00

110.50

111.00

Indexed Gain

1.06

0.56

0.06

0.00

22.66%

22.66%

22.66%

22.66%

Tax

0.24

0.13

0.01

0.00

Post Tax Gains

10.32

10.44

10.55

10.56

Value Of Investments

110.32

110.44

110.55

110.56

9.53

9.63

9.74

9.75

Tax Rate

Post tax returns

In a nutshell
Given the fact that returns from a FMP are not assured,
FMPs are generally considered riskier than a FD
But FDs also have their own share of risks as they are
usually rated
The credit rating of an FD is an indicator of the degree
of risk associated with it
For instance, a rating of AAA/FAAA offers the highest
level of safety. So, an FD carrying a credit rating lower
than this carries higher risk

What should investors do?

For investors looking at a competitive return at a
minimum risk , both FMPs and FDs are viable
investment options
To choose between them, investors need to take into
account their risk profile and investment objective
among other factors
For instance, while FMPs may appeal to investors willing
to take a little risk for that extra return, FDs will find
favour with investors who are satisfied with a lower but
assured return

Guiding philosophy

What comes from people should go back to them many

times over
- J R D Tata

Risk Factors

Statutory Details: Investment Manager: Tata Asset Management Ltd.. (Investment Manager for Tata Mutual Fund)
Trustee: Tata Trustee Company Pvt. Ltd. Statutory Details: Constitution: Tata Mutual Fund has been set up as a
trust under the Indian Trust Act, 1882. Sponsors: Tata Sons Ltd., Tata Investment Corporation Ltd.
Nature & Investment Objective: Tata Equity Opportunities Fund: An open ended equity fund. To provide income
distribution and/or medium to long term capital gains while at all times emphasising the importance of capital
appreciation. Tata Pure Equity Fund: An open ended equity fund. To provide income distribution and/or medium to
long term capital gains while at all times emphasising the importance of capital preservation.Tata Select Equity
Fund: An open ended equity fund. To provide income distribution. Tata Index Fund: An open ended index linked
equity fund. To reflect/mirror the market returns with a minimum tracking error. Tata Balanced Fund: An open
ended balanced fund. To provide income distribution and/or medium to long term capital gains while at all times
emphasizing the importance of capital appreciation. Tata Young Citizens Fund: An open-ended balanced scheme.
To provide long term capital growth along with steady capital appreciation to its unitholders, while at all times
emphasising the importance of capital preservation. Tata Monthly Income Fund: An open ended income scheme
with no assured returns. To provide reasonable and regular income along with possible capital appreciation to its
unitholders.
Risks Factors: Mutual Funds and securities investments are subject to market risks and there can be no
assurance and no guarantee that the Schemes will achieve their objectives. As with any investment in stocks,
shares and securities, the NAV of the Units of the Schemes can go up or down, depending on the factors and forces
affecting the capital markets. Past performance of the Schemes, the Sponsors or its Group affiliates are not
indicative of and do not guarantee the future performance of the Schemes. Tata Equity Opportunities Fund, Tata
Pure Equity Fund, Tata Index Fund, Tata Balanced Fund and Tata Young Citizens Fund are only the name of the
schemes and do not in any manner indicate either the quality of the scheme, its future prospects or the returns.
Investment in fixed income securities is subject to interest rate risk, credit risk and liquidity risk. The sponsors are
not responsible or liable for any loss resulting from the operations of the scheme beyond the initial contribution of
Rs. 1 lac made by them towards setting up the fund. Investments in Mutual Funds are subject to market risks,
please read the offer document carefully before investing.
Disclaimer: The views expressed in this presentation are of Tata Asset Management Ltd. and are in no way trying
to predict the markets or to time them.

Thank You for Your Time and Attention

Thank You.

Fort House, 221, Dr D N Road, Fort, Mumbai 400 001.

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E-mail: kiran@tataamc.com.com
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