Fixed maturity plans (FMPs), that were once the rage of mutual fund market in India, seem to have lost their sheen a bit last year with indications of interest rates softening.
It is true that the mop up under FMPs was impressive in 2012. But compared to the previous calendar year, the total mobilisation and the number of FMPs launched fell sharply in 2012.
In its report India Fund Observer 2012, which is an annual analysis of important trends in the financial and MF sectors, Morningstar India pointed out that when interest rates are rising, investors flock to FMPs as they want to lock into high yields. Since March 2012, the mobilisation under this scheme has declined after interest rates started to fall.
The report pointed out that during 2011, FMPs raked in a record Rs 1,19,000 crore, the highest collection in a single year. This was because of the high interest rates and bond yields and 2011 saw nearly 700 FMPs being launched. This record surpassed the earlier record of Rs 1,16,000 crore collection in 2008 when around 570 FMPs were launched.
Even in that year, Morningstar report said, interest rates were up because of high inflation. After the Lehman crisis exploded, the RBI slashed the interest rates in the final quarter of 2008. In the next year, there was a dramatic drop in the number of, and mobilisation under, FMPs.
During the last calendar year, the investors’ fancy for FMPs was very strong during the first quarter (Jan-March) when the short term interest rates were high. In this period, the FMPs mobilised close to Rs 55,000 crore. Generally, January-March witnesses a heavy inflow into FMPs because of double-indexation tax benefits offered by them.
But after March 2012, short-term interest rates were down significantly and this had an impact on FMPs. In 2012, the number of such funds launched exceeded 500 and they collected around Rs 80,000 crore. This is a marked decline from 2011 when nearly 700 FMPs mopped up about Rs 1,19,000 crore.
The wild swing in the collection made by FMPs in the past five years reflects Morningstar conclusions. The FMP collection had peaked in 2008 and 2011 when they topped Rs 1,00,000 crore.
But in 2009, FMPs hit the bottom in terms of the number launched and funds mobilised though they picked up in 2010.