Wednesday, January 29, 2014

FAQs on FMPs

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Here are the answers to the simplest queries that you may have before investing in FMPs

 

When does the term of an FMP start, from the date of purchase or the date of closing of NFO?


The term of an FMP starts from the date of allotment which can differ from the closing date of NFO. The allotment process is usually completed within 5 days of closure of NFO and the units are credited to investors' accounts.

 

How do I redeem after maturity?
You do not need to file a redemption request with the fund house at maturity of the scheme. AMCs are bound to transfer redemption proceeds within 10 days from the date of maturity. The amount you get will be determined by the scheme NAV on the redemption date. This amount will be automatically credited to your registered bank account if direct credit option is available with your bank or else redemption warrants will be issued to you.

 

Do I need a demat account for redemption of FMP?


You don't need a demat account to get the redemption proceeds. However, you need one if you want to trade the FMP on exchange before maturity.

 

How are FMPs different from short-term funds?


Liquidity is the biggest differentiating factor between the two funds. While FMPs are closed-end, short-term funds are open-ended, meaning you can enter or exit short-term funds any time.

 

FMPs invest in instruments with same or lower maturity than the scheme. This means that regardless of change in interest rates, the returns that would be realised are known. Short-term funds, though, can invest in instruments with varying maturity, depending on the fund manager's outlook for interest rates. So if a short-term fund has invested in bonds with longer maturity it can suffer interest rate risk.

 

I want to invest in current FMPs through secondary market. How do I go about this?


All FMPs have to be compulsorily listed on exchange. If you are able to find a seller for the FMP you want to invest in, you can buy units of the scheme from the stock market like you buy an equity share. It is highly unlikely that you will find sellers and therefore low liquidity.

 

 

 

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

 

 

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