FMP Full Form: Fixed Maturity Plan Meaning, How It Works & Tax Rules 2026
FMP full form is Fixed Maturity Plan, a type of close-ended debt mutual fund scheme available in India. If you have come across this term in mutual fund literature, NFO announcements, or tax documents and wondered what FMP means in finance, in accounting, or in the context of mutual funds, the answer is the same across all these contexts: Fixed Maturity Plan.
This guide covers what FMP means, how it works, who should invest, how it compares to a Fixed Deposit, and the current tax rules for FY 2025-26 including the important Section 50AA update that changed FMP taxation from April 2023.
What Is FMP Full Form in Finance and Mutual Funds
FMP full form in finance is Fixed Maturity Plan. In the mutual fund context, it refers to a close-ended debt scheme where your money is locked in for a fixed tenure and invested in debt instruments whose maturity aligns with the plan’s tenure. At the end of that period, the fund matures and the proceeds are returned to investors.
FMPs are regulated by SEBI and offered by Asset Management Companies (AMCs) through a New Fund Offer (NFO) window. Once the NFO closes, no new investments are accepted and existing investors cannot exit until maturity, except through limited stock exchange transactions which typically carry low liquidity.
FMP full form in accounting is the same: Fixed Maturity Plan. In accounting and financial reporting, FMPs are categorised as debt-oriented mutual fund investments and treated accordingly in balance sheets and tax computations.
FMPs are regulated by SEBI under its scheme categorization circular, which defines the structure and investment mandate for close-ended debt funds.
How an FMP Works
The mechanism of an FMP is straightforward:
Step 1: NFO window opens. The AMC announces a new FMP with a specified tenure (commonly 1 year, 3 years, or longer) and an NFO subscription window of 3 to 15 days. You invest during this window only.
Step 2: Money is deployed. The fund manager invests the pooled corpus in debt instruments whose maturity matches the FMP tenure. Common instruments include:
- Certificates of Deposit (CDs) from scheduled banks
- Commercial Papers (CPs) from rated companies
- Corporate bonds and Non-Convertible Debentures (NCDs)
- Treasury bills and government securities
Step 3: Lock-in period runs. Your investment stays locked until the FMP matures. Unlike open-ended debt funds, you cannot redeem on any business day. Some FMPs are listed on stock exchanges, but trading volumes are typically very low.
Step 4: Maturity proceeds paid out. On maturity, the fund liquidates its portfolio and pays out the proceeds to investors. Returns are indicative rather than guaranteed since they depend on the actual performance of underlying instruments.
FMP vs Fixed Deposit: Key Differences
Salaried investors often compare FMPs with bank Fixed Deposits since both have defined tenures and relatively stable returns. Here is how they compare on the factors that matter:
| Parameter | FMP | Fixed Deposit |
|---|---|---|
| Returns | Indicative, not guaranteed | Guaranteed rate on certificate |
| Liquidity | Locked until maturity | Premature withdrawal with 0.5-1% penalty |
| Tax on gains (post Apr 2023) | Slab rate (Section 50AA) | Slab rate on interest income |
| Timing of tax | Only at maturity | Each year as interest accrues |
| Risk | Low (credit risk on instruments) | Very low (DICGC cover up to Rs.5 lakh) |
| Who it suits | Investors wanting deferred tax payment | Investors needing capital safety and liquidity |
The key remaining advantage of FMPs over FDs is tax timing. FD interest is taxed each year as it accrues, even in a cumulative FD. FMP gains are taxed only in the year of maturity. For investors in the 30% slab with a 3-year FMP, this deferred tax payment provides a cash flow advantage even though the rate is the same.
FMP Taxation FY 2025-26: Section 50AA Rules
This is the most important section for anyone currently holding or considering an FMP investment.
For FMPs Purchased On or After April 1, 2023
All FMPs purchased on or after April 1, 2023 fall under Section 50AA of the Income Tax Act. Under this section, all gains are treated as short-term capital gains regardless of how long you hold the investment. There is no LTCG benefit, no indexation, and no reduced rate. The gain is added to your total income and taxed at your applicable slab rate.
Example: FMP purchased May 2023, redeemed after 2 years
| Particulars | Amount |
|---|---|
| Investment | Rs. 5,00,000 |
| Maturity value | Rs. 5,80,000 |
| Gain | Rs. 80,000 |
| Tax treatment | Slab rate (Section 50AA) |
| Tax @ 30% slab | Rs. 24,000 |
| Health and Education Cess @ 4% | Rs. 960 |
| Total tax payable | Rs. 24,960 |
Even though the investor held the FMP for 2 years, Section 50AA treats the gain as short-term. The same tax outcome would apply if held for 5 years.
For FMPs Purchased Before April 1, 2023
If you purchased FMP units before April 1, 2023 and held them for more than 36 months, the gain qualifies as Long-Term Capital Gain. For units sold after July 23, 2024, LTCG is taxed at 12.5% without indexation.
Example: FMP purchased February 2023, held 36+ months, redeemed after July 23, 2024
| Particulars | Amount |
|---|---|
| Investment | Rs. 5,00,000 |
| Maturity value | Rs. 6,20,000 |
| Gain | Rs. 1,20,000 |
| Tax treatment | LTCG @ 12.5% |
| Tax @ 12.5% | Rs. 15,000 |
| Health and Education Cess @ 4% | Rs. 600 |
| Total tax payable | Rs. 15,600 |
FMP Taxation Summary Table
| Purchase Date | Holding Period | Tax Treatment | Rate |
|---|---|---|---|
| On or after April 1, 2023 | Any | Short-term (Section 50AA) | Slab rate |
| Before April 1, 2023 | Less than 36 months | Short-term | Slab rate |
| Before April 1, 2023 | 36+ months (sold before July 23, 2024) | LTCG | 20% with indexation |
| Before April 1, 2023 | 36+ months (sold after July 23, 2024) | LTCG | 12.5% without indexation |
Features of Fixed Maturity Plans
Fixed tenure. FMPs have a defined maturity period ranging from 30 days to 5 years. One-year and three-year FMPs are most common.
Close-ended structure. Investment is only possible during the NFO window. Redemption before maturity is not available through the AMC.
Portfolio alignment. The fund manager invests in instruments whose maturity matches the FMP tenure, which limits interest rate risk significantly compared to open-ended debt funds.
Indicative returns. FMPs do not guarantee returns. The yield is indicative based on the portfolio at the time of the NFO. Actual returns depend on the performance of underlying instruments.
Low expense ratio. FMPs typically have lower expense ratios than actively managed open-ended debt funds since the portfolio is largely buy-and-hold.
IDCW option available. Some FMPs offer an Income Distribution cum Capital Withdrawal option alongside the Growth option.
Who Should Invest in Fixed Maturity Plans
FMPs are suitable for investors who:
- Have a defined investment horizon that matches the FMP tenure
- Do not need liquidity during the investment period
- Are in the 20% or 30% tax slab and want to defer tax payment to the maturity year
- Want lower volatility than open-ended debt funds
- Are comfortable with indicative rather than guaranteed returns
FMPs are not suitable for investors who may need funds before maturity, since early exit through the stock exchange typically results in a discount to NAV.
Considerations Before Investing in an FMP
Credit risk. FMPs invest in corporate bonds and CPs. If the issuer defaults, returns can be impacted. Always check the credit quality of the indicative portfolio before investing.
Liquidity risk. Once the NFO closes, exit is only through the stock exchange where FMPs are listed. Trading volumes are typically very low, so selling before maturity may not be possible at a fair price.
Tax planning. With Section 50AA now covering all FMPs purchased after April 2023, the tax advantage over FDs has narrowed. The only remaining benefit is tax deferral to the maturity year. Factor this into your decision.
NFO timing. FMP returns are closely linked to interest rates at the time of the NFO. Higher interest rate environments typically result in better indicative yields for FMPs.
For salaried investors managing tax liability across multiple income sources, my guide on advance tax payment explains how FMP maturity proceeds affect your advance tax obligation in the year of maturity.
How to Invest in an FMP
FMPs can only be purchased during the NFO window. Here is how:
Step 1: Watch for FMP NFO announcements on your mutual fund platform (Groww, Zerodha Coin, MFCentral) or directly on the AMC website.
Step 2: Check the tenure, indicative portfolio, credit ratings of underlying instruments, and expense ratio before subscribing.
Step 3: Subscribe during the NFO window using your existing mutual fund account. Minimum investment is typically Rs. 5,000.
Step 4: After allotment, units will appear in your demat or mutual fund account. Monitor until maturity.
Step 5: On maturity, proceeds are credited to your registered bank account. Report the gains under the appropriate head in your ITR for that financial year.
Report the gains under the appropriate head in your ITR. My guide on how to file ITR online walks through the complete process.
Conclusion
FMP full form is Fixed Maturity Plan, a close-ended debt mutual fund that invests in fixed-income instruments matching its tenure and returns proceeds at maturity. The key change investors must know for FY 2025-26 is that all FMPs purchased on or after April 1, 2023 are taxed at slab rate under Section 50AA regardless of holding period. The earlier LTCG benefit with indexation no longer applies to new purchases.
For salaried investors, FMPs remain relevant primarily for their tax deferral advantage over FDs, where gains are consolidated and taxed in the maturity year rather than being taxed annually. Whether that advantage justifies the liquidity sacrifice depends on your investment horizon and tax planning needs for that specific year.
Whether you are on the old or new regime, slab rate applies to Section 50AA gains. My guide on old vs new tax regime covers which regime suits different income profiles.
Frequently Asked Questions
FMP full form in medical context?
In medical terminology, FMP stands for First Menstrual Period, which is completely unrelated to finance. In all financial and investment contexts, FMP full form is Fixed Maturity Plan.
Is FMP better than FD in 2026?
After the Section 50AA change from April 2023, the tax rate on FMP gains and FD interest is the same for new investments – both are taxed at slab rate. The only advantage FMPs retain is tax deferral: FD interest is taxed each year, while FMP gains are taxed only at maturity. For investors in the 30% slab with longer tenures, this deferred taxation can provide a cash flow benefit.
Can I exit an FMP before maturity?
You cannot redeem FMP units through the AMC before maturity. Some FMPs are listed on stock exchanges, but liquidity is typically very low. Selling on the exchange may result in a significant discount to the actual NAV.
Are FMP returns guaranteed?
No. FMP returns are indicative, not guaranteed. The fund manager invests in debt instruments whose performance determines the actual return. Most FMPs from reputed AMCs investing in high-quality instruments have historically delivered returns close to their indicative yield, but there is no legal guarantee.
How is IDCW from FMP taxed?
IDCW distributions from FMPs are added to your total income and taxed at your applicable slab rate. TDS at 10% is deducted under Section 194K if total IDCW from an AMC exceeds Rs. 5,000 in a financial year.
Do I need a demat account to invest in FMPs?
A demat account is not mandatory for all FMPs, but it is required if you want to trade the units on a stock exchange before maturity. You can invest in most FMPs through regular mutual fund platforms without a demat account.
