FMP indicative yield do deviates with less margins and returns on FD is assured, if there is no default by Bank. where else Interest Income on FDs is club to your income and you pay the slab at which your income tax is charges.
FDs<br />In an FD, you deposit an amount with the bank for a fixed duration.<br />You earn a fixed rate of interest on this investment. The interest rate is fixed at the time of the investment – even if interest rates change during the tenure of the FD, the interest that you earn on your FD remains fixed. (The interest is not floating)<br />Thus, you invest a fixed amount, for a fixed duration, and earn a fixed interest on it. No wonder, it is called a fixed deposit!<br />A certificate of deposit is a time deposit product<br />
FMPs<br />Fixed Maturity Plans are close-ended debt schemes with a maturity horizon varying from one month to five years.<br />Launched with predetermined maturity date; so as the investments are made in such securities which mature at or around the same time as the schemes do. <br />Dividend or growth option<br />Investors are not allowed for premature redemption during period and are warranted to stay till maturity.<br />However, premature withdrawals are allowed on the stock exchanges where these units are listed and traded at market prices. <br />However this route is not yet very liquid. The schemes are shut down generally once they get matured.<br />
Indexation<br />Under Indexation, you are allowed by law to inflate the<br />cost of your asset by a government notified inflation<br />factor.<br />• This factor is called the ‘Cost Inflation Index’, from<br />which the word ‘Indexation’ has been derived.<br />• This inflation index is used to artificially inflate your<br />asset price.<br />• This helps to counter erosion of value in the price of an<br />asset and brings the value of an asset at par with<br />prevailing market price.<br />• This cost inflation index factor is notified by the<br />government every year. This index gradually increases<br />every year due to inflation.<br />
How is cost-inflation indexcomputed? ?<br />• The cost inflation index (CII) is calculated as shown:<br /> Inflation Index for year in which asset is sold<br />CII = --------------------------------------------------------------<br /> Inflation Index for year in which asset was bought<br />This index is then multiplied by the cost of the asset to<br />arrive at inflated cost.<br />
Common features<br />The investors are aware of the returns before hand. <br />Both the instruments carry Credit Risk. <br />However they are been assessed by credit agencies for quality. <br />
Differences<br />FMP highlights Indicative Yield where else FD is assured returns. <br />FMP income, attracts the low rate of Income tax have indexation benefit which makes it more tax efficient. <br />