Fixed Maturity Plans(FMPs) and Captal Protection Oriented Funds (CPOSs) are the findings in search of excellent products to risk averse investors in the wake of drying up of Assured Return MIPs from Mutual Funds in the Indian context.
Way back in 1993 itself, private mutual funds started innovating and perfected this idea by late 90s when they succeeded in offering debt funds that matched the maturity of the underlying portfolio. The portfolio generally had only one asset with same maturity as that of the scheme offered. Though the fluctuations in the interest rate in the market affected the value of the portfolio, by reserving some 20% to the equity markets fund managers tried to meet investor expectations. The trial and error finally led to force SEBI to issue formal guidelines to offer FMPs and CPOSs.
FMPs do not offer any capital protection at all. FMPs, the objective is return generation whereas in the case of CPOS, the Fund Manger tries to protect the Capital , but not guranteed. The debt instruments needs to get compulsorily credit rated for inclusion in the portfolio. They use Options and Futures to achieve this end. As the derivatives market is in the experimental stages in India, the coming years will open flood gates of opportunityies to those who seek a bit more than returns from debt funds.
See the malyalam version in Business Manorama dated 29th Jan 2007
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