FIXED/GROWTH PLAN

Fixed maturity plans (FMPs) are a special class of close ended debt mutual fund that mature after completion of a pre-determined time period. Thus you can make investments in an FMP only during the new fund offer (NFO) period. After completion of the NFO period, no new investments can be made into an FMP scheme. What’s more, fixed maturity plan investments can be redeemed only after the scheme has matured and no premature redemption of units are allowed during the interim.

Key Investments of Fixed Maturity Plans

As a result of being classified as non-equity investments, the main investments of FMPs are various debt and money market instruments. The following are some of the more popular debt investments of FMPs:

  •         CBS (collateralized borrowing and lending obligations)
  •         Government Securities (G-Secs)
  •         T-Bills (Treasury Bills)
  •         Liquid scheme units
  •         Repo and Reverse Repo Instruments
  •         Highly-rated NCDs (non-convertible debentures)
  •         Securitized Debt Instruments
  •         CDs (certificate of deposits)
  •         CPs (commercial papers) and
  •         Various other cash-equivalent investments.

The above list of FMP investments is indicative and the allocation of individual instruments in the scheme’s portfolio, as well as their credit quality and residual maturity, may vary significantly from one FMP to another.

Key Investments of Fixed Maturity Plans

As a result of being classified as non-equity investments, the main investments of FMPs are various debt and money market instruments. The following are some of the more popular debt investments of FMPs:

  •         CBS (collateralized borrowing and lending obligations)
  •         Government Securities (G-Secs)
  •         T-Bills (Treasury Bills)
  •         Liquid scheme units
  •         Repo and Reverse Repo Instruments
  •         Highly-rated NCDs (non-convertible debentures)
  •         Securitized Debt Instruments
  •         CDs (certificate of deposits)
  •         CPs (commercial papers) and
  •         Various other cash-equivalent investments.

The above list of FMP investments is indicative and the allocation of individual instruments in the scheme’s portfolio, as well as their credit quality and residual maturity, may vary significantly from one FMP to another.

Growth funds

A mutual fund that invests in growth stocks (an emerging company) to attain maximum capital appreciation is a growth mutual fund. This is why they seek out companies with a proven track record of great revenue growth or younger companies with potential. On the flip side, the risk is also on the higher side. These funds, along with blend and value funds, form one of the main categories of equity mutual funds. They are split in the small, mid and large groupings of market capitalisation. A growth fund portfolio is made up of companies that register fast-paced progress and can deliver higher returns to investors. They, then, reinvest the earnings for research and development, acquisitions and expansions. As it comprises of stocks with little or next to no dividend payouts, companies that pay out dividends are of little interest to a growth fund manager. However, when the market falls, it can hit the investors badly just as it can reap significant capital gains when the market is high!  

2. Who should invest in growth funds?

Growth funds are high-risk investment instruments. Therefore, you must consider investing in growth funds only if you are an aggressive risk seeker. For this reason, it has the potential to deliver high returns. If you are close to your retirement, then it would be prudent to not invest in these funds. It is best suitable for long-term investments. Hence, opt for these only if you are risk-tolerant and are willing to invest for at least 5 to 10 years. Even though you can exit the fund early, it comes with an exit load. The only returns will be from selling the funds, and your profit will be the surplus selling price over the purchase price. If you think this suits your investment persona, go ahead and invest in growth funds. Therefore, younger investors who have a long-term investment at hand find them particularly appealing.