We all know what is bank unconditional totaling happening. In this article I will power an commencement to FMP or Fixed Income Plan, comparison in the middle of FMP and Bank Fixed Deposit and once an voyager should invest in FMP.
What is FMP or Fixed Income Plans?
FMPs are closed over and ended along in the middle of mutual fund want as soon as a parenthood era ranging from a few days to five years. Most of the FMP plans are debt oriented. But a few strive for may have a little equity component. At the fade away of the times, the plot matures, just considering a unchangeable totaling in a bank. FMP schemes have two options. With store choice or once dividend options.
Do FMP provides a guaranteed compensation?
No, they reach not. But investors are informed an indicative reward at the maturity. If you choose a FMP, which invest on your own in debt instruments, more often than not, the actual compensation will be in accord moreover indicative compensation.
What is the difference amid FMP and Bank FD?
Practically, for an investor, there is no difference. Only difference is that bank FD gives an explicit guarantee in defense to return, where as in FMP, compensation is indicative. In terms of tax friendliness, FMP are more tax understandable than Bank FD ( see the table sedated ).
Invested Amount – Rs 100 – Rs 100
Return% -10% – 10%
Investment Tenure – 1 year – 1 year
Interest Earned – Rs 10 – Rs 10
Tax upon Interest Earned – Rs 1.416 – Rs 3.4
Net Interest after Tax – Rs 8.6 – Rs 6.6
*12.5% Dividend Distribution Tax + 10% Surcharge + 3% Cess = 14.16% **30% Tax (for allowance on peak of 10 lakhs) + 10% Surcharge + 3% Cess = 34%
Dividend Options or Growth Option – Which one I should go for?
It depends upon the tenure of your investment. For less than one year investment, dividend different is bigger. For a less than one year parenthood era, you pay 14.16% tax, deducted at the epoch of distribution of dividend. For on peak of one year, accrual strange is beneficial. In conflict of anew one year, you quirk to pay 10% as capital do tax (without indexation) or 20% tax (taking into account indexation). You can also avail the lead of double indexation by investing in march of a financial year and redeeming the units in April in neighboring financial year ( make known – get in March’09 and redemption in April’10 ). In stroke of double indexing, tax answerability is added edited.For more info Renaissance technologies.