Fixed Maturity Plans (FMPs) which are attracting huge inflows in the last few
months, might once again be able to declare indicative yields (returns),at least
in a range, if market regulator Securities and Exchange Board of India (Sebi)
gives the go ahead. Mutual Fund industry body, Association of Mutual Funds in
India (Amfi) plans to take up the matter with new Sebi chief, UK Sinha.
In 2009, Sebi had instructed all fund houses to stop declaring indicative
yields on FMPs and had made it compulsory for these schemes to be listed on the
stock exchanges. Industry players feel that, Sebi should allow them to declare
indicative yields as many fund houses are anyways informally declaring yields to
their distributors.
FMPs are passively managed income schemes, which invest in corporate and
government debt papers, thereby earning interest, which is then given back to
investors on its closure. They are so called because they have a fixed tenure
ranging from three months to three years and are close-ended in nature. A senior
official from the leading fund house on condition of anonymity said, “there are
many investors who won’t invest until one tells them about its return giving. So
now there are many distributors who are secretly telling yields and selling the
products.”
According to some market participants, Amfi is taking up the issue when they
meet the new Sebi chief for the first time. “We hope Sebi might look in the
matter; it is very difficult to convince a retail investor without giving them
yields. We are just asking regulator to allow us to indicate yields in some
range, which will be useful for us in selling the product.”
However Amfi official declined to comment on the issue. In the month of
January alone over 12,700 crore were raised from 48 FMPs
Dhirendra Kumar, CEO of Value Research says, “For the regulator, giving
indicating yields (for FMPs) hints at protection of capital, which is actually
not the case with FMPs (afterall, there could be default on bond repayments).
Also post 2008 crises, with industry facing severe liquidity crises, regulator
has taken several steps to prevent an encore.”
My Comments -
I agree word to word from Dhirendra Kumar. Such regulations are vital so that none of the investor is duped. FMPs no doubt are better products than the FDs from taxation point of view, if one falls in 20% or 30% Income Tax bracket.
What is more important for an investor is to do proper financial planning not solely returns? If an investor will stop running solely for returns ,things would be a lot different & better.
