Kotak Mutual Fund informed investors that it would not be able to fully redeem investments made in two series of the Fixed Maturity Plans (FMPs). Separately, HDFC Mutual Fund also announced the extension of one of its FMP schemes by 380 days.
About:
Debt mutual funds: Debt mutual funds, unlike equity MFs, invest in debt securities issued by companies (both publicly listed and privately held) and governments.
Fixed Maturity Plans (FMPs):
FMPs are a class of debt funds that are close-ended i.e. one can only invest in them at the time of a new fund offer and they come with a specified maturity date, much like a fixed deposit (FD).
However FMPs don’t offer a guaranteed return but only pitch an indicative yield that the investor then takes a bet on.
The tenure of an FMP can vary between a few months to a few years.
Benefits: Investments in FMPs are more tax-efficient, since there are ‘indexation’ benefits linked to capital gains, as opposed to tax on interest income in the case of an FD.
Risks: FMPs, however, like other debt funds come with interest rate risk and credit risk.
Both the mutual funds’ investment managers had invested (as part of their portfolios) in debt securities issued by some of the Subhash Chandra-promoted Essel Group’s listed and unlisted companies.
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