FMP Vs FD – Which is Better?

FMP Vs FD – Which is Better?

In India, the Bank Fixed deposits are very much popular because of one reason and that is - “SAFETY”. Fixed Maturity Plans (FMPs) however offer much higher returns than FDs but still they are not as popular as FDs.

But well, in my opinion FMPs are better and superior than FDs. This is because of the tax treatments for both of these financial instruments is different.

In case of Bank FDs, your interest income will be considered as income from other sources and will be taxed as 30% if you fall in the highest tax bracket. However, this is not the case of FMPs. The income from FMPs is considered as Capital Gain income because of its holding period of more than 1 year (typically 370 days).

One can earn higher returns from 370 days FMP than 500 days fixed deposit.

On the top of this the interest rates offered by FMPs is higher than FDs. In case of 500 days bank FD the interest rate is 8-8.5% per annum while in case of just 1 year FMPs the interest rate is 8.5-8.9% per annum.

Not only this but in the near future the interest rates are going to go up much higher than this. Don’t surprise if in the near future the FMP interest rates goes up to 10% per annum.

And that’s why in my opinion an investor should invest in FMPs rather than in Bank FDs. Tell me what do you think about it?