Fixed Maturity Plans (FMPs) are gaining traction as a preferred alternative investment to conventional fixed deposits (FDs). These closed-end debt funds have a predetermined maturity timeline and are increasingly favored by investors.

Unlike open-ended debt funds, FMPs are not available for ongoing subscription. Instead, they are launched through a New Fund Offer (NFO) with specified opening and closing dates, allowing investors to subscribe during this period only. Post the closing date, investment opportunities in that FMP conclude.

FMPs primarily allocate resources to debt instruments such as certificates of deposit, money market instruments, corporate bonds, commercial papers, and bank fixed deposits. A fund manager selects instruments that align with the FMP's maturity period.

A notable difference between FMPs and other debt funds is the adoption of a buy-and-hold strategy by FMP fund managers. Unlike other debt funds that actively trade debt securities, FMPs take a passive stance, which aids in maintaining a lower expense ratio compared to other debt funds.

When juxtaposed with FDs, FMPs and FDs both necessitate investors to commit for a designated period and offer varied maturities to suit different investor needs. However, they differ in terms of returns. FDs offer guaranteed returns, whereas FMPs provide indicative yields, indicating that actual returns could deviate from those initially proposed during the NFO launch. Investors should comprehend this variance before investing.

For those seeking higher returns than typical FDs and willing to endure NAV fluctuations, FMPs can be enticing. While FMPs are perceived as low risk-low return compared to equity funds, they do entail certain risk owing to limited liquidity.

Potential investors should meticulously review historical return trends, tax implications, and the scheme’s investment objectives before committing to FMPs. Being cognizant of current developments, like the requirement to stay invested for at least three years to leverage indexation on long-term capital gains tax, is also crucial.

To sum up, FMPs present a compelling alternative to traditional fixed deposits for those pursuing higher returns. Nonetheless, a comprehensive evaluation of risks and rewards is essential before any investment decision is made.