How Have My Fixed Maturity Plans (FMPs) Fared In the Past One Year Compared To My Fixed Deposits (FDs)?

by Vinaya HS on February 21, 2012

in Finance

Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

In the past one year, my Fixed Maturity Plans (FMPs) have fared only slightly better than my Bank Fixed Deposits (FDs) of comparable tenure.

  • A 1-year FMP from IDFC achieved an APR of 10.05% (equal to an APY of 10.44% with quarterly compounding).

  • A 1-year FMP from SBI achieved an APR of 9.89% (equal to an APY of 10.26% with quarterly compounding).

  • A 1-year FD from HDFC Bank achieved an APR of 9.25% (equal to an APY of 9.58% with quarterly compounding).

Ignoring the complexities of investment timing and income tax, that’s less than a percentage point in difference! Have you seen anything different with your FMP and FD investments?

Note:

Here’s how you do the APR (simple interest) to APY (compound interest at a certain compounding interval) conversion.

If you’re totally lazy to the APR to APY conversion by hand, here’s a quick Android-application that I hacked. If you’re adventurous enough, you can download the .apk file and install it on your Android-phone as an unsigned application. Let me know if you run into any trouble — it should run fine on most Android environments.




Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 5 comments… read them below or add one }

rohit February 24, 2012 at 10:00 PM

Vinaya,
thax for sharing the info.

APY of 10.44% looks attractive.
How much tax you will have to pay…

Vinaya HS February 26, 2012 at 3:06 PM

@rohit:

They matured across two financial years. So I guess I get the benefit of indexation. :-)

Nirjhar May 17, 2012 at 2:58 PM

Hi Vinay,
could you give us some tutotrials ,pros-cons on FMP’s .
If possible if you can include some hands on example on indexation along with calculation ,it will be of v good help .

Rgds,
Nirjhar

Sam June 29, 2012 at 3:16 PM

But isn’t the impact of income tax significant enough not to ignore? At this highest slab, the FD returns would be around 6%, while FMPs would still give returns higher than 7.5%.

Vinaya HS July 9, 2012 at 6:33 PM

@Sam –

Yeah. I didn’t want to complicate the illustration. FMPs are most certainly tax advantageous especially when their duration straddles multiple financial years.

Previous post:

Next post: