Thursday, September 11, 2008

HOW TO BUY AN FMP?

Unlike regular open-ended or closed-end mutual fund (MF) schemes that are open in their 'New Fund Offer' (NFO) period for around 20 to 21 days - or sometimes even for a month - fixed maturity plans (FMP) are open for a few days only. Companies require money for their daily needs on a regular basis, hence they tap various sources like banks and MFs, regularly. Hence, to keep the money supply going, and at the same time to tap the prevailing high interest rates as soon as possible, FMPs are launched in quick succession. 

It is also rare that your agent will push FMPs to you because FMPs are low-margin products. Unlike equity funds where agents earn as much as 2.25 per cent front-end commission (and trailing fees of up to 0.50 per cent for as long as you stay invested), FMPs have a very low cost structure. MFs earn only upto 0.50 to 0.75 per cent or so from your FMP, out of which they have to pay agents commission. Online brokerages also sell FMPs selectively. Kotak bank (online broker) and www.icicidirect.com do not, to the best of my knowledge. www.sharekhan.com does; it has a special FMP section on its internet trading website.  

So how do you buy an FMP then?
It's best to keep checking with your broker. He gets information of all the on-going FMPs. You have to take the initiative, because FMPs come and go very quickly. He may not want to go out of his way to sell you FMPs, but if you take the initiative and ask him, there are more chances of you coming to know. 

Scout MF websites. All MFs have details and application forms of on-going FMPs on their websites. Download the forms, fill them up (make sure you write 'DIRECT' in the agent's code box on the top part of your application form) and visit your nearest MF's office or its registrar & transfer agents' and submit the form. To get a list of 'point of acceptance', check out your MF'swebsites. 

If you are investing more than Rs 50,000, make sure your KYC is done. Also, ensure that you carry a copy of your PAN card. If you can carry your original PAN card, better. 

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