What is a Fixed Maturity Plan?
Fixed Maturity Plan (FMP) is a fixed tenure mutual fund scheme, that invests its corpus in debt instruments maturing in line with the tenure of the scheme. The tenure of an FMP can vary between a few months to a few years.
Ideal for investors with a tenure in mind
Minimal Interest Rate Risk
Better post Tax Returns
All Fixed Maturity Plans
What is indexation?
Adjusting the cost of capital asset (in this case your investment in FMP) by incorporating the impact of inflation, on the amount you have invested, during the period of holding of investment i.e. the time (Financial Years) between your investment and maturity of the FMP.
If you invest ina a 1200-day FMP on 23rd March 2015 then it will mature on 4th July 2018, hence you can index the cost of your investment using the CII(Cost inflation Index) values from FY 2014-15 and FY 2018-19 to lower the tax impact.
How Indexation benefits a FMP vs. Fixed Deposit?
|Particulars||Fixed Maturity Plan (1200 days)||Fixed Deposit (1200 days)|
|Investment Duration (in days) (B)||1200 days||1200 days|
|Investment Yield^ (C)||6.80 %||6.80 %|
|Maturity Value(D)= (A)x(1+C)^(B/365) (FMP)||₹124,146||₹124,818|
|Initial Cost of Investment (E)||₹1,00,000||₹1,00,000|
|Indexed Cost of Investment* (F)=(A/240)x280||₹1,16,667||N/A|
|Taxable Capital Gains (G)=D-F (FMP), D-A (Fixed Deposit)||₹7,479||₹24,818|
|Applicable Tax Rate #(H)||20.80%||31.20%|
|Amount of Tax (I)=GxH||₹1,556||₹7,743|
|Maturity Value (Post Tax) (J)= D-I||₹1,22,590||₹1,17,075|
|3 Year Absolute Returns (Post Tax) (K)=(J-A)/A||22.59%||17.08%|
|CAGR Investment Yield (Post Tax)(L) = ((J/A) ^ (1/(B/365)) - 1)x 100||6.39 %||4.91 %|
|See how we arrive at this amount|
^lnvestment yield on FMP and that of Fixed deposit have been considered at the same rate to demonstrate tax efficiency borne out of indexation. Yield (compounded quarterly) on fixed deposit has been considered as per the current rate available in www.sbi.co.in for Retail Domestic Term Deposits (3 years to less than 5 years) w.e.f. November 28, 2018. Actual returns may vary based upon prevalent market conditions and rates. Please consult your tax adviser for actual tax implications. ti For Fixed Deposit - Assuming a retail investor (having an income below Rs. 50 lakhs) falling in the highest tax bracket & including 4% Health and Education cess. For FMP - 20% with indexation & including 4% Health and Education cess. Indexation Values: 2014-15: 240. 2015-16: 254, 2016-17: 264. 2017-18: 272, 2018-19: 280..Cost Inflation Index (C(I) is taken for the year of investment and that of the year of redemption i.e. 2014-15 and 2018-19 respectively and the rates used are actual rates prescribed by Income Tax authorities for these years. The above is only an example to show the method of calculating capital gains tax payable by an investor with or without indexation and should not be construed to be an investment or tax advice of any nature. There is no assurance or guarantee of future performance of any FMP under SBI Mutual Fund. The calculation is based on prevailing tax laws. Please consult your tax/financial advisor before taking any investment decision.
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View the Scheme Information Documents or Key Information Memorandum for any fixed maturity plan
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