Fixed maturity planHDFC Mutual Fund has launched a new FMP or fixed maturity plan called HDFC FMP 1134D Series 40. The fund opened for subscription on 21st May and will be open until 23rd May. An FMP usually invests in debt that has approximately the same tenure as the FMP itself. According to the Scheme Offer Document (SID), HDFC FMP has a tenure of 1134 days or about 3 years and 2 months.

In the table below we give you the ‘intended allocation’ of the fund along with the latest available yield of similar securities in the relevant CRISIL Index.

Sr No. Allocation Instrument Relevant Crisil Index Yield % (for April 2018)
1. 70-75% NCDs rated AAA Crisil AAA Short-Term Bond Index, Medium Term Bond Index 7.61, 7.85
2. 25-30% Government Securities, T-bills Crisil 1 year T-bill Index 6.39
3. 0-5% CDs/CPs rated A1+ Crisil 1 year CP, Crisil 1 year CD Index 7.23, 7.62
4. 0-5% CBLO/Reverse Repos Crisil CBLO Index 5.68

Source: SID, Pulse Labs

A weighted average of the yields on the corresponding Crisil Index works out to 7.35%. This is by no means the actual yield that the fund will give but can provide some idea of where yields are for these types of securities and what their average works out to. The benchmark of the fund is the Crisil Composite Bond Index and the yield on it is 7.85% as of April 2018. Some key factors that may have changed are rising yields (due to increasing interest rates) and the fund being able to invest in higher or lower yielding securities than what is reflected in the index.

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 HDFC FMP 1134D Series 40. 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:

NFO Period: 21st-23rd May 2018

Tenure: 1134 days

Benchmark: Crisil Composite Bond Index

Options: Growth and Dividend

Minimum Investment Amount: Rs 5,000

Author
Neil Borate

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