During the last decade, retail and corporate investors were very comfortable in investing in Fixed maturity Plans (FMP). FMP had a clear earning visibility, and it was giving better Post Tax return as compared to available options in Fixed Income Securities.
Post IL&FS, Franklin closure of their 6 debt plans and couple of defaults in corporate sectors, investor are scared and apprehensive to invest in close ended plans.
Above plan of Edelweiss gives safety, liquidity (Being Open ended) and better post Tax yield. Other open ended debt funds like Medium to Long Duration Fund, Dynamic Bond Fund, Gilt Fund etc.. charges high fund management fees, which ranges from 0.50 -2.15%. Whereas this fund has 0.30% fund management charges.
At present five year Tax Free Bonds are quoting at 4.25%, whereas post Tax return in this plan will be 5.90%. (after considering capital gain, indexation, Cess and surcharge)
The plan will invest 50% in SDL (State Development Loan) having Sovereign rating and balance 50% in Central PSE carrying AAA rated Bonds. Exposure to any single Central PSE bond or SDL would be capped at 15% of the corpus.
The plan will mature on April 20, 2026, thus the selection of underlying securities will have tenure matching with the maturity of the plan.
We will suggest this fund for retail and corporate investors, who are into high Income Tax Bracket (i.e 25% and above). Post RBI Policy and Union Budget the market is anticipating hike in interest rate. Thus any instrument with long term maturity will give below lower return. Above plan has medium term maturity as underlying securities.