What is the Difference Between Fixed Deposits (FDs) & Fixed Maturity Plans (FMPs)?
| Feature | Fixed Deposits (FDs) | Fixed Maturity Plans (FMPs) |
| Investment Type | A fixed-interest savings instrument offered by banks or financial institutions. | A debt mutual fund with a fixed investment horizon. |
| Risk Level | Low (the bank guarantees principal). | Low to moderate (subject to credit risk and market fluctuations). |
| Return Type | Fixed returns are based on the interest rate at the time of investment. |
Returns depend on the performance of underlying debt securities. |
| Maturity Period | Typically 7 days to 10 years. | Fixed maturity period, typically 1 to 5 years. |
| Liquidity | Withdrawals before maturity incur penalties and loss of interest. |
There is no liquidity until maturity; early redemption may incur an exit load. |
| Taxation | Interest is taxed as per the investor’s tax bracket. |
Taxed like debt funds. It is taxed as per the investor’s tax bracket. |
| Returns | Returns are generally lower than FMPs. | Potential for higher returns than FDs due to equity exposure. |
| Guarantee of Principal |
The bank guarantees the principal. | There is no guarantee, but FMPs aim to match the maturities of debt instruments with the fund’s terms. |
| Interest Payment | Interest is paid out periodically (monthly, quarterly) or at maturity. | Returns are accumulated and paid out at maturity. |
| Ideal For | Conservative investors who prefer fixed, guaranteed returns. | Conservative investors looking for stability with a possibility of higher returns than FDs. |
In summary, Fixed Deposits (FDs) are ideal for conservative investors seeking guaranteed returns and low risk. At the same time, Fixed Maturity Plans (FMPs) offer higher return potential with moderate risk and no principal guarantee. Both are suitable for investors with a low-risk tolerance, but FMPs provide a better chance for growth with some market exposure.
Understanding the difference between FDs and FMPs can help you make better investment decisions. While FDs offer fixed returns, FMPs may offer tax efficiency and flexibility. A mutual fund distributor or financial advisor can help align these options with your goal-based investing needs, whether retirement planning, a child education investment plan, or other wealth creation strategies.
