Fixed Deposits or Fixed Maturity Plans? Let’s unlock the mystery
Upstox
2 min read • Updated: January 17, 2024, 8:30 PM
Summary
Understand the key difference between Fixed Deposits and Fixed Maturity Plans and learn which is better for you.
So, you've got some money to invest, and you're torn between the tried-and-true Fixed Deposits (FDs) and the intriguing Fixed Maturity Plans (FMPs). Let's break it down in simple terms so you can make an informed choice.
Fixed Deposits (FDs): The Basics FDs have been the go-to for risk-averse investors. They're like the comfy sweater of investments—safe, stable, and predictable. You park your money, and after a set period, you get back your principal and the agreed-upon interest. Easy peasy. Fixed Maturity Plans (FMPs): The New Kid on the Block Now, enter FMPs—Mutual Fund's answer to potentially better returns. But, and it's a big but, they come with a bit more risk. FMPs invest in various financial instruments, and their returns aren't guaranteed. It's like the difference between a dependable sedan (FDs) and a zippy sports car (FMPs).
Key Factors to Consider: ItalicRisk: FDs: Low-risk, like strolling in the park. FMPs: A bit riskier, with elements like credit and interest rate risks. It's the rollercoaster of investments.
**Liquidity: **FDs: Usually, you can pull out early with a penalty. Some flexi FDs even allow penalty-free early exits. FMPs: Your money is in for the long haul until maturity. No quick exits here.
Tenure: Both offer various tenure options, but FDs can stretch up to 10 years, while FMPs usually cap at 5 years. When to Invest: FDs: Anytime, like picking up groceries. FMPs: You need to catch them during their open season. They're not available year-round.
Tax Benefits: FDs: Returns are taxed as per your income slab. Simple, but not necessarily wallet-friendly. FMPs: Tax rules are a tad complex. Gains on FMPs held for less than three years are treated as regular income. After three years, it's a 20% long-term capital gains tax (LTCG) party.
The Tax Twist Recent tax changes mean that for investments made after April 1, 2023, FMP gains will dance to your income slab tune. The once-beloved indexation benefit for debt fund gains is no more.