Explained: What is the concern for fixed maturity plans?

Several instances of rating downgrades by credit rating agencies and defaults by corporates over the last six weeks sent shockwaves among investors of FMPs, which is considered a relatively safe investment instrument.

With investor sentiment weakening after leading mutual funds reported exposure to debt papers of Zee Group and Reliance Capital among others that have turned illiquid, mutual funds witnessed net outflows of Rs 17,644 crore in April from fixed maturity plans and the total corpus of FMPs declined to Rs 141,170 crore. While some mutual funds said that they are working towards recovery of their investment done through FMPs in such papers, investors have turned wary of their investment in the investment instrument. The net withdrawal from FMPs came even as overall inflows of mutual funds rose by Rs 100,459 crore in April to Rs 25.27 lakh crore. The equity schemes saw inflows of Rs 4,608 crore in the month of April.

What is the concern for FMPs?

Several instances of rating downgrades by credit rating agencies and defaults by corporates over the last six weeks sent shockwaves among investors of FMPs, which is considered a relatively safe investment instrument. If exposure of debt papers of IL&FS was one big concern among investors, reports of MFs exposure to Zee Group companies, Reliance Capital and Hazaribagh Ranchi Expressway raised fresh concerns. The concern is also learnt to have worried the regulators and sources confirmed that the Securities and Exchange Board of India looking at revisiting regulations relating to mutual funds to safeguard investor interests.