Fixed Maturity Plan debt funds are closed-ended debt funds that invest in various debt and money market securities with a similar time horizon to the fund. They declare a predefined maturity tenure in the beginning. Also, they are close-ended, which means they are open for investment in only a particular window.
The primary aim of these funds is to lock in the currently prevailing high interest rates and provide decent returns for the predefined tenure. These funds aim to prevent a fall in the investment value in a falling interest rate scenario.
These funds are suitable for risk-averse investors aiming to avoid market fluctuations and generate constant income from their investments. They can also be a good option for aggressive investors looking to lock in higher gains in a high interest rate environment. These funds have a predefined maturity period and offer similar returns to the bank FDs. But we believe that investors can avoid this category altogether and can invest in liquid funds and short-duration funds for the debt allocation of their portfolios. We feel that there are too many debt fund categories available based on the tenure and types of bonds. This leads to more confusion and does not add any value to retail investors.