Kavitha Menon's Blog

The biggest advantage of investing in FMPs is the tax benefit. One can pay long term capital gains at 10 % or choose to pay 20 % after claiming indexation benefit. This year thanks to high inflation, the Cost index used to calculate capital gains will be at least 7% to 8 % higher. If that is the case then by taking the option of 20 % tax with indexation benefit, you may end up having almost all your capital gains tax free. FD interest on the other hand is taxable at the marginal rate of tax applicable to you. For working of tax benefit refer to articile on the following link https://www.ppfas.com/pdf-docs/research/week-reports/2008/wr090808.pdf The only real disadvantage with respect to this instrument is liquidity. You can break a bank fixed deposit if there is need for funds. The bank may pay you a lower rate of interest or charge you a nominal penalty, but you still get your money back in a day or two. FMPs on the other hand have zero liquidity. As per Sebi's order last year FMP...

We wish we had seen it coming. The rally after the fall. If we did we could have made a ton of money with the markets having more than doubled since its lows of 2008. At the time of the huge correction the investing community was divided into three: 1 .The Cynics - These guys had resources to invest and take advantage of cheap valuations. They however believed that the market could see further downside and there was no recovery in a long long time. They probably had lost money already with existing investments and were unwilling to commit more. 2.The broke bunnies - These were investors who lost a great deal of their wealth in the stock correction, had no cash in hand or other assets that they could liquidate to buy stocks at the huge discounts they were available at. 3. The gold hunters - They were people with the cash and recognized deep value in the markets. They jumped in to take advantage of falling prices. The great Indian stock sale was too good to be true and our hunters lapped...