Comeback for FMPs indicative yields

Fixed Maturity Plans (FMPs) which are attracting huge inflows in the last few months, might once again be able to declare indicative yields (returns),at least in a range, if market regulator Securities and Exchange Board of India (Sebi) gives the go ahead. Mutual Fund industry body, Association of Mutual Funds in India (Amfi) plans to take up the matter with new Sebi chief, UK Sinha.

In 2009, Sebi had instructed all fund houses to stop declaring indicative yields on FMPs and had made it compulsory for these schemes to be listed on the stock exchanges. Industry players feel that, Sebi should allow them to declare indicative yields as many fund houses are anyways informally declaring yields to their distributors.

FMPs are passively managed income schemes, which invest in corporate and government debt papers, thereby earning interest, which is then given back to investors on its closure. They are so called because they have a fixed tenure ranging from three months to three years and are close-ended in nature. A senior official from the leading fund house on condition of anonymity said, "there are many investors who won't invest until one tells them about its return giving. So now there are many distributors who are secretly telling yields and selling the products."

According to some market participants, Amfi is taking up the issue when they meet the new Sebi chief for the first time. "We hope Sebi might look in the matter; it is very difficult to convince a retail investor without giving them yields. We are just asking regulator to allow us to indicate yields in some range, which will be useful for us in selling the product."

However Amfi official declined to comment on the issue. In the month of January alone over 12,700 crore were raised from 48 FMPs

Dhirendra Kumar, CEO of Value Research says, "For the regulator, giving indicating yields (for FMPs) hints at protection of capital, which is actually not the case with FMPs (afterall, there could be default on bond repayments). Also post 2008 crises, with industry facing severe liquidity crises, regulator has taken several steps to prevent an encore."

Source: http://www.financialexpress.com/news/comeback-for-fmps-indicative-yields/759126/0

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