FMP Review: UTI FMP Series XXIX open from May 21 to June 4, 2018UTI Fixed Term Income Fund Series XXIX (1113 days) is open for subscription from 21st May until 4th June 2018. It is a fixed maturity plan (FMP) that has a tenure of 1,113 days (roughly 3 years and 1 month). An FMP usually invests in debt that has approximately the same tenure as the FMP itself. Its ‘intended portfolio allocation’ specifies a focus on NCDs (Non-convertible debentures) rated AA.

The yields on the CRISIL AA bond indices (Short Term and Medium) were 8.28% and 8.58% respectively (as of April 2018). AA bonds/NCDs are one step below the AAA bonds/NCDs usually bought by FMPs which can mean both higher returns and higher risk.   

The fund, however, is benchmarked against the CRISIL Composite Bond Index which had a yield of 7.85% (as of April 2018). This is likely to have increased a little in the current month. Sunil Patil who manages other UTI FMPs and Capital Protection Schemes will be the manager of this fund. He also manages the debt component of UTI balanced fund.

The intended portfolio allocation of the fund is as follows:

Sr No. Instrument Allocation
1. 80 – 100% in Debt instruments as follows
2. 0 – 20% in Money Market Instruments
Credit Allocation
1. 0 – 100% in NCDs rated AA

Taxation

FMPs are treated as debt funds. Gains in them for holding periods of less than three years are taxed as Short Term Capital Gains (STCG). They are taxed as per your slab rate (which could be as high as 30%). Gains in FMPs for longer holding periods than three years are taxed as Long Term Capital Gains (LTCG). They are taxed at 20% along with the benefit of indexation.

Indexation takes inflation into account while computing taxable gains, thereby potentially reducing the effective tax rate. Some FMPs which commence in the last few months of a financial year, mature over four rather than three financial years, giving them an additional tax advantage. However, this is not the case with UTI FMP Series XXIX (1113 days). Nonetheless, this FMP has a tenure above three years, making it eligible for Long-Term Capital Gains (LTCG) taxation. You can also choose the dividend option but this will incur Dividend Distribution tax (DDT) which adds up to about 29% (including cess etc).

Key Details

Minimum Investment: Rs 5,000

Tenure: 1113 days (roughly 3 years and 1 month)

Options: Growth and Dividend

NFO Period: 21st May to 4th June 2018

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.