Fixed Maturity Plan (FMP) VS Bank Fixed Deposits

Dear All,

With a lot of Fixed Maturity plans (FMP) offering as high as 9.85% these days, we at DENIP decided to compare them to Bank Fixed deposits which tend to offer around 10% or more depending on which category you’re investing in.

For ease of calculation and understanding we decided that its best to let the Bank FDs have a 0.5% point advantage over the FMPs since yields tend to vary depending on the time you’re investing in them. So with the Bank FDs interest rate set at 9.5% and FMP yield set at 9% we decided to see which instrument got us the best post tax yield.

Fixed Maturity Plan offered by Mutual Fund houses  VS Bank Fixed Deposits	Bank FD	FMP (Retail Plan Growth Option)
		Without Indexation	With Indexation
Investment Amount	1,00,000	1,00,000	1,00,000
Assumed net yield to investor(p.a)	9.50%	9.00%	9.00%
Tenor (days)	400	400	400
Amount at Maturity	1,10,410.96	1,09,863.01	1,09,863.01
Interest/long-term capital gain	10,410.96	9,863.01	9,863.01
Indexed cost acquisition (double indexation)	NA	NA	1,12,360.00
Indexed gain/loss	NA	9,863.01	-2,496.99
Tax Rate*	30.90%	10.30%	20.60%
Tax on interest on FD/capital gain on MF	3,216.99	1,015.89	NA
Post-tax income	7,193.97	8,847.12	9,863.01
Post-tax yield (simple annualized)	6.56%	8.07%	9.00%

As per the table above if you do fall in the 30% tax category, its best to opt for FMPs rather than Bank FDs. We also think that for companies which tend to invest in Bank or Corporate FDs should definitely consider investing in FMPs due to the tax benefit they offer.

All your views and opinions on the same are more than welcome.

Thanks,

Dewang