Corporates investors prefer FMP, banks to re-look at fixed deposit schemes

Most of the corporates prefer investing in fixed maturity plans (FMP), offered by mutual fund houses as these provide maturity at shorter terms while offering competitive profits. Therefore banks have started re-looking at fixed deposit schemes offered by them.

Recently Religare Mutual Fund, Fidelty Mutual Fund, HDFC Mutual Fund and Axis Mutual Fund have launched fixed maturity plans with maturity periods ranging from 90 days to 370 days.

According to Asit Pal, executive director of the Corporation Bank, “Definitely we will have a re-look at the performance of fixed deposits against fixed maturity plans. But we also need to get a clear picture about the market share of FMPs.”

He added, “Fixed deposit schemes have performed better last year. Although it was little dampened on the retail side, performance of high value clients investing in FDs was quite good.”

However, FMPs are favorites with corporate investors due to shorter maturity periods. But a section of corporate investors do prefer fixed deposits for better returns. Nilanjan Dey, Wishlist Capital Advisors said, “Corporate investors look for convenience in investments. So it has a chance to become popular again this time,”

Debjiban Basu, general manager (treasury, international banking & accounts) of United Bank of India, say corporates main concern is of liquidity. “If they are looking for easy liquidity and some interest then fixed deposits are better instruments for them. There is an upward trend of the yield in the market. Moreover, corporates are also looking at minimizing their MTM losses.”

Salil Datar, head (branch banking) of Dhanlaxmi Bank, points out corporates mostly prefer short-term FMPs with a maturity of about 90 days. He said, “Suppose an FMP offers a yield of 6-6.3% on a 90 days maturity period, its post-tax return will be around 4.8-4.9%. For a fixed deposit of similar tenure with an estimated yield of 5-5.5%, post tax return is around 3.6%. So for shorter term FMPs are a favorite with corporate investors.”

He added, “But I do not think corporates will be much interested in FMPs with maturity period as long as 370 days. Fixed deposits have an edge over FMPs there.”

D Sarkar, executive director of Allahabad Bank, stated, “We might consider increasing yield on the fixed deposits by 25-50 basis points. But that is not with an intention to compete with FMPs.”