Fixed Maturity Plan (FMP): Meaning, Features, Taxation & Who Should Invest

What is a fixed maturity plan? A Fixed Maturity Plan (FMP) is a close-ended debt mutual fund scheme with a pre-defined maturity date. The FMP full form is Fixed Maturity Plan. It generally invests in debt and money-market instruments such as government securities, corporate bonds, certificates of deposit, commercial paper and treasury bills, with the portfolio maturity broadly aligned to the tenure of the scheme. Because the scheme has a defined end date, investors typically enter during the New Fund Offer (NFO) and receive the maturity proceeds when the plan ends. Returns are market-linked and are not guaranteed. 

What is a Fixed Maturity Plan (FMP)? 

A Fixed Maturity Plan is a close-ended debt mutual fund. Unlike an open-ended debt fund, an FMP does not remain continuously open for fresh subscriptions and redemptions. Investors usually subscribe during the NFO period, after which the scheme closes to fresh purchases through the fund house. 

The fund manager builds a portfolio of debt and money-market securities whose maturities are generally aligned with the FMP tenure. This helps reduce the impact of interest-rate movements if the securities are held to maturity. However, FMPs still carry credit risk, liquidity risk and the possibility of lower-than-expected returns. 

FMPs are mandatorily listed on a recognised stock exchange. Investors cannot normally redeem units directly with the fund house before maturity, although listed units may be sold on the exchange if there is sufficient liquidity and a buyer is available. The market price may differ from the scheme’s NAV. 

How Fixed Maturity Plans Work 

1. The fund house launches an NFO. An FMP is offered for a limited subscription period with a clearly stated tenure and maturity date. 

2. Investors subscribe during the NFO. Investment is generally made as a lump sum because fresh subscriptions are not continuously available after the NFO closes. 

3. The fund manager creates a debt portfolio. The money is invested in eligible fixed-income and money-market instruments, with maturities usually chosen to broadly match the scheme tenure. 

4. The portfolio is managed through the tenure. Because securities are often intended to be held close to maturity, day-to-day interest-rate movements may have a smaller effect on the maturity outcome than in an actively traded debt portfolio. Credit events can still affect returns. 

5. Units remain locked for direct redemption. The AMC does not normally offer premature redemption. Since FMPs are listed, an investor may try to sell units on the exchange, but trading volumes may be limited. 

6. The scheme matures. At the end of the tenure, the scheme is wound up and the maturity proceeds are paid to unit holders after the portfolio is realised and scheme liabilities are met. 

Features of Fixed Maturity Plans 

Debt-oriented portfolio: FMPs primarily invest in debt and money-market instruments such as government securities, corporate bonds, certificates of deposit, commercial paper and treasury bills. 

Defined maturity period: Each scheme has a fixed tenure. The portfolio maturity profile is generally aligned with the scheme’s maturity date. 

Close-ended structure: Fresh investments are normally accepted only during the NFO. Direct redemption with the AMC is not generally available before maturity. 

Credit quality varies by scheme: FMPs do not automatically invest only in the highest-rated securities. Investors should review the scheme portfolio, credit ratings and concentration before investing. 

Relatively predictable return profile: Holding debt securities close to maturity can make the return profile more predictable than a frequently traded debt portfolio, but the return is not fixed or guaranteed and can be affected by defaults, downgrades and reinvestment. 

Potentially lower expense ratio: Lower portfolio turnover can help keep fund-management costs relatively low compared with some actively managed debt strategies. Always check the actual Total Expense Ratio (TER) in the scheme documents. 

Taxation of Fixed Maturity Plans: Short-Term vs Long-Term Capital Gains 

The tax treatment of FMPs has changed materially in recent years. Since FMPs are debt-oriented mutual funds, the acquisition date of the units is especially important. The summary below reflects the general position for resident individual investors as of September 2026; tax rules can change and individual circumstances may differ. 

Short-term capital gains (STCG): For debt-oriented FMP units acquired on or after 1 April 2023, gains on transfer, redemption or maturity are generally treated as short-term capital gains irrespective of how long the units are held. The gain is taxed at the investor’s applicable income-tax rate, and indexation is not available. 

Long-term capital gains (LTCG): LTCG treatment is mainly relevant to legacy FMP units acquired before 1 April 2023. For transfers on or after 23 July 2024, listed mutual fund units generally qualify as long-term after being held for more than 12 months. Qualifying LTCG is generally taxed at 12.5% without indexation, subject to the applicable tax law and the investor’s circumstances. 

Investment date	Capital-gain treatment	General tax treatment
Units acquired on or after 1 April 2023	Deemed STCG regardless of holding period	Applicable slab / tax rate; no indexation
Legacy units acquired before 1 April 2023	Ordinary holding-period rules apply; listed units transferred on/after 23 July 2024 generally become long-term after more than 12 months	Qualifying LTCG generally 12.5% without indexation; STCG taxed at applicable rate

TDS note: For resident investors, mutual funds generally do not deduct TDS merely because capital gains arise on redemption. Different withholding rules can apply to non-residents, so NRI investors should check the applicable provisions. 

Example: Suppose a resident investor puts ₹2,00,000 into a debt-oriented FMP on 1 June 2024 and receives ₹2,25,000 at maturity in June 2027. Because the units were acquired after 1 April 2023, the ₹25,000 gain is generally treated as STCG even though the holding period is three years. The gain is taxed at the investor’s applicable rate, and indexation is not available. 

Advantages and Limitations of Fixed Maturity Plans 

Advantages 

• Defined maturity can help align the investment with a known future financial goal. 

• A portfolio that broadly matches the scheme tenure can reduce interest-rate sensitivity when securities are held close to maturity. 

• Debt diversification may provide a more stable return profile than equity investments, although returns are still market-linked. 

• Lower portfolio turnover may help keep costs relatively controlled in some schemes. 

Limitations 

• Returns are not guaranteed. Defaults, downgrades or adverse credit events can reduce the maturity value. 

• Liquidity is limited. Although units are listed, secondary-market trading can be thin and an early seller may receive a price below NAV. 

• Fresh investment is normally possible only during the NFO, so there is limited flexibility to add money later. 

• Debt-fund tax treatment may reduce the post-tax advantage for units acquired on or after 1 April 2023. 

Who Should Consider Investing in an FMP? 

• Investors with a lump sum and a clearly defined investment horizon that broadly matches the FMP tenure. 

• Investors seeking debt exposure and relatively lower day-to-day volatility than equity, while accepting credit and liquidity risk. 

• Investors who do not need regular access to the invested money before maturity. 

• Investors comfortable evaluating portfolio credit quality, scheme tenure, expenses and tax implications before investing. 

An FMP may not suit an emergency fund, an investor who needs guaranteed returns, or someone who wants the flexibility of an ongoing SIP or easy redemption at any time. 

Things to Consider Before Investing in a Fixed Maturity Plan 

1. Expected return profile: Review the scheme’s portfolio yield indicators and maturity profile, but do not treat them as guaranteed returns. 

2. Tax implication: Consider the acquisition date and current tax rules when estimating post-tax returns. 

3. Investment objective: Make sure the scheme maturity aligns with the goal for which you are investing. 

4. Expense ratio: Check the TER because costs directly reduce investor returns. 

5. Credit quality of the underlying securities: Review ratings, issuer concentration and the share of lower-rated instruments, if any. Higher yields can come with higher credit risk. 

6. Your investment timeline: Invest only if you can remain invested for the full tenure. Relying on exchange liquidity for an early exit can be risky. 

If you need liquidity without immediately selling eligible mutual fund holdings, Fibe Loan Against Mutual Funds lets eligible customers pledge mutual fund units to access a credit line of up to ₹10 lakh, subject to eligibility and the value/type of pledged holdings. This can provide access to funds while the investments remain pledged instead of being redeemed outright. Learn more on Fibe 

FAQs on Fixed Maturity Plan 

1.What is the lock-in period for a Fixed Maturity Plan? 

The tenure is fixed when the scheme is launched and can range from a few months to several years. Investors should check the Scheme Information Document (SID) for the exact maturity date before investing. 

2.Can I withdraw my investment from an FMP before maturity? 

You generally cannot redeem FMP units directly with the fund house before maturity. Because FMPs are listed on a stock exchange, you may be able to sell units there, but liquidity can be low and the sale price may be below NAV. 

3.How are Fixed Maturity Plans different from regular mutual funds? 

FMPs are close-ended debt funds with a defined maturity and a limited subscription window. Open-ended mutual funds generally allow ongoing purchases and redemptions. FMP returns are market-linked and should not be treated as fixed or guaranteed. 

4.Are Fixed Maturity Plans safe investments? 

FMPs usually have lower equity-market exposure because they invest mainly in debt instruments, but they are not risk-free. Credit risk, liquidity risk, reinvestment risk and issuer defaults can affect returns and capital. 

5.Can I invest in FMP through SIP? 

Generally, no ongoing SIP is available after the NFO because an FMP is close-ended. Investors normally subscribe during the NFO as a lump-sum investment. Any NFO-specific facility should be checked in the scheme documents. 

6.What happens to my FMP if the fund house closes? 

Mutual fund scheme assets are held in trust for unit holders and are separate from the AMC’s own assets. If a scheme is wound up, the trustees follow the applicable SEBI process, realise the scheme assets, meet scheme liabilities and distribute the remaining proceeds to unit holders in proportion to their holdings. 

7.Are returns from FMP guaranteed? 

No. FMP returns are market-linked and are not guaranteed unless a scheme document expressly provides a valid guarantee, which is uncommon. Credit events, defaults, expenses and market conditions can affect the final return.