What tax benefits will I get investing in an FMP?

Will I be able to claim IT benefits by investing in an FMP as it is a debt fund? and what about the returns? Are they tax free? They usually indicate Post tax returns – are these returns the actual amount i will get in hand after tax deductions? Mainly, will FMP’s give me tax benefits like ELSS and ULIP’s

3 Replies to “What tax benefits will I get investing in an FMP?”

  1. 1. If you want to invest your money for only a short period of time, then it is a good option. Since FMPs mature in a particular timeframe, you can get a scheme for as short as 15 days.

    2. Do you want to play safe with your money? In that case, you should invest in fixed-return investments. But, do note, you are not given an assured return in the case of an FMP. Though chances are you will get a slightly higher return than what you would get in a bank fixed deposit.

    3. Invest money you are quite sure you are not going to need. You can only withdraw the money during pre-set time periods. It is not an open-ended fund that allows you to exit (sell your units) whenever you want.

    4. If you think interest rates are going to rise, what you can do is invest in FMPs that will mature quickly. In this way, your money will not be blocked for too long and you can reinvest it later at a higher interest rate.

    This is the dividend distribution tax that is deducted by the fund company. Once this is paid, no further taxation applies to the income. Although this is obviously not as much of a tax advantage as the long-term capital gains option, it’s still a lot lower than the full tax payable on bank deposits.

  2. Returns on FMPs are treated as capital gains and taxed accordingly. The returns are taxed in your hand.
    The capital investment has no tax benefit like ELSS and ULIP’s,

  3. ELSS & ULIP benefit are not available in FMP, but friend i suggest you not to invest in ELSS or ULIP. or you can invest in ICICI pru life or similar scheme & later on switch to debt fund (switch option is available in the fund). By this you will get tax benefit as well as your money will be safe.

    No 80C deduction (Tax deduction) is not available for investment in Debt Fund. But FMP of more than 1 year gives capital gain indexation. e.g. if you buy FMP of Rs.100 & sell after one year 110 Rs. then your cost will be assumed to be 100 *index /100 thus you will be paying less tax as your income will get reduced.

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