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A comparison between bank FD and FMP: FD versus FMP

Fixed Maturity Plans, or FMPs, are pitched against bank fixed deposits (FDs). So, how do they compare with fixed deposits? Which is better if we do a “fixed maturity plan v/s FD” analysis?

Let’s have a FD vs FMP comparison.

In “Understanding Fixed Maturity Plans (FMP)”, we talked about the various features of FMPs.

But since FMPs compete against bank FDs, let’s have an “FMP v/s bank FD” comparison, so that we can understand the advantages and disadvantages of each against the other.

Fixed Maturity Plan (FMP) Fixed Deposit (FD)
Asset Class Debt Debt
Offered by Mutual Funds (MFs) Banks
Safety Quite safe, but less safe compared to bank FDs Very safe, safer than FMPs
Type of investment Fixed duration Fixed duration
Duration of investment 1 month to 3 years 15 days to 10 years
Money invested in Commercial Paper (CP), Certificate of Deposit (CD), Money market instruments, corporate bonds and bank FDs NA
Rate of return Usually beats inflation by a small margin, return is better than bank FDs Usually beats inflation by a small margin, return is a little lesser than FMPs
Rate of return (at the time of investment) Indicative, not guaranteed Guaranteed
Expense Ratio 0.25% to 1% per year 0%
Exit Load From 1% to 3% From 0% to 1% (Penalty for breaking an FD)
Income tax (IT) treatment of returns Dividend: Tax free

Short term gain: Clubbed with that year’s income, and is taxed as per the applicable IT slabs

Long term gain: Taxed at a special rate – 10% without the benefit of indexation, or 20% with the benefit of indexation.

Interest earned is clubbed with that year’s income, and is taxed as per the applicable IT slabs

(Want to know the current IT slabs? Please read “Income Tax (IT) Slabs / Brackets – FY 2008-09 AY 2009-10”)

(Want to know the classification of gains as long term and short term? Please read “Long Term and Short Term Capital Gain – Income Tax Calculation”)

(To know the cost inflation index – CII – for various years, please read “Long Term Capital Gains (LTCG) on Sale of a House – Calculation and Income Tax”)

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