Fixed Deposit vs Fixed Maturity Plan (FMP): What Changed in 2026

By
Hemant Beniwal
-
80
Fixed Deposit Vs Fixed Maturity Plan

Last Updated on April 23, 2026 by teamtfl

For most of the 2010s, one question had a clear answer: Fixed Deposit or Fixed Maturity Plan?

Financial advisors almost universally said FMP. The tax advantage was significant. FMPs enjoyed indexation benefits and lower long-term capital gains rates. For investors in the 30% tax bracket, the post-tax difference between an FMP and a bank FD was substantial, sometimes 2 to 3 percentage points on the same pre-tax yield.

Then came April 2023. And the FD vs FMP comparison changed completely.

Quick Answer

Since April 2023, FMP (Fixed Maturity Plan) gains on units purchased after that date are taxed at your income tax slab rate, just like FD interest. The old indexation and LTCG advantage no longer applies. However, FMPs still have one meaningful edge: FD interest is taxed annually on accrual, while FMP gains are taxed only when you redeem. For long-term investors in higher tax brackets, this deferral can still make a difference.

Fixed Deposit vs Fixed Maturity Plan India 2026

Table of Contents

What Is a Fixed Maturity Plan?

A Fixed Maturity Plan is a closed-end debt mutual fund scheme with a pre-determined tenure, typically ranging from a few months to 3 to 5 years. The fund manager invests in bonds and debt instruments that mature at roughly the same time as the FMP itself. Returns are therefore largely predictable at the time of investment, though not guaranteed the way FD interest is.

Unlike open-ended debt funds where you can enter and exit any day, FMPs lock you in for the tenure. You cannot redeem before maturity except by selling on a stock exchange, where liquidity is typically poor.

The portfolio is passively managed. The fund manager is not trading to generate returns. The goal is to hold instruments to maturity, collect interest, and return proceeds to investors at the end of the tenure.

The April 2023 Tax Change That Changed Everything

Before April 2023, FMPs held for more than 3 years qualified for long-term capital gains treatment with indexation benefit. This was a major advantage. Indexation adjusted the purchase cost upward for inflation, dramatically reducing the taxable gain. For a 30% tax bracket investor, the effective post-tax return on a 3-year FMP was sometimes 200 to 300 basis points higher than an equivalent FD.

The Union Budget 2023 eliminated this advantage entirely. For FMP units purchased on or after April 1, 2023, all gains are now classified as short-term capital gains regardless of how long you hold them. They are taxed at your applicable income tax slab rate.

This means for an investor in the 30% tax bracket, an FMP earning 7.5% pre-tax now delivers roughly the same after-tax return as an FD earning 7.5%. The old moat is gone.

Old FMP Tax Advice Is Dangerously Wrong in 2026

Much of what you read online about FMP tax benefits, including older articles on this website, was written before April 2023. Indexation benefits and lower LTCG rates for FMPs no longer apply to new investments. If someone is recommending an FMP to you based on pre-2023 tax calculations, that advice is outdated.

FD vs FMP: A 2026 Comparison

Parameter Bank FD Fixed Maturity Plan
Returns Guaranteed, fixed at booking Indicative, not guaranteed
Taxation (post April 2023) Slab rate, taxed on accrual annually Slab rate, taxed only on redemption
Liquidity Premature break allowed with penalty Lock-in; exchange liquidity is poor
Safety DICGC insured up to Rs. 5 lakh per bank No deposit insurance; credit risk on underlying bonds
TDS 10% TDS on interest above Rs. 40,000/year (Rs. 50,000 for senior citizens) No TDS during holding period
Transparency Simple, well understood Portfolio disclosed monthly by SEBI mandate

The One Advantage FMPs Still Have

Even after the 2023 tax change, FMPs retain one meaningful structural advantage over FDs: the timing of taxation.

FD interest is taxed on accrual. Every year, whether or not you withdraw a rupee, the interest credited to your FD is added to your income and taxed that year. For a 3-year FD, you pay tax in Year 1, Year 2, and Year 3.

FMP gains are taxed only when you redeem at maturity. For a 3-year FMP, you pay no tax for Year 1 or Year 2. The entire gain is taxed only in Year 3 when you actually receive the money. This deferral means the untaxed portion keeps compounding throughout the holding period.

The practical impact of this deferral depends on your tax bracket and the holding period. For a 30% bracket investor in a 3-year instrument, the tax deferral advantage of an FMP can add roughly 0.3 to 0.5 percentage points to the effective post-tax yield compared to an FD of identical pre-tax return. Not as large as the old indexation advantage, but still meaningful.

“FD interest is taxed every year whether or not you need the money. FMP gains are taxed only when you redeem. Over 3 to 5 years, that compounding of untaxed returns makes a real difference for investors in higher tax brackets.”

Something Worth Noticing

Most investors think about investment returns in pre-tax terms. What matters is what you keep after tax. For a person in the 30% tax bracket, a 7.5% FD and a 7.5% FMP deliver the same gross return but the FMP’s tax deferral means more of that return compounds uninterrupted. Over 3 to 5 years, the difference is not dramatic but it is real. This is the kind of calculation that separates thoughtful retirement planning from guesswork.

Who Should Consider FMPs Today?

After the 2023 tax changes, FMPs make most sense for a specific type of investor. Not for everyone.

FMPs make sense if you are in the 30% tax bracket and have a clear fixed holding period of 1 to 3 years, you do not need liquidity during the tenure, and the FMP’s underlying credit quality is high (AAA or sovereign-rated instruments). The tax deferral benefit is most valuable for high-income investors over longer tenures.

FMPs do not make sense if you might need the money before maturity since breaking an FMP is difficult and exchange liquidity is poor. They also do not make sense for investors in lower tax brackets where the deferral advantage is minimal. And they are not appropriate as a substitute for your emergency fund or for goals with uncertain timelines.

For most conservative investors building a retirement portfolio, the combination of open-ended debt mutual funds for flexibility and bank FDs for guaranteed returns and DICGC insurance is simpler and often more practical than FMPs.

Senior Citizens: SCSS Beats Both for Safety and Returns

For investors above 60, the Senior Citizens Savings Scheme (SCSS) currently offers 8.2% per annum with quarterly payouts and government backing. While the interest is taxable at slab rate like an FD, the combination of high guaranteed return, safety, and regular income makes it one of the best debt instruments for retirees. FMPs cannot compete on safety. Bank FDs struggle to match the rate.

What This Means for Retirement Planning

For someone building a retirement corpus at 45 to 55, the FD vs FMP choice is part of a larger debt allocation question. The more important questions are: What is the right proportion of debt in my portfolio? Which debt instruments give me the best risk-adjusted return? How do I structure debt allocations to ensure the money I need in Year 1 of retirement is not at risk?

For the debt portion of a retirement portfolio, a thoughtful mix typically includes SCSS for the senior citizen phase, short-duration debt funds for 1 to 3 year requirements, and possibly target maturity funds or FMPs for defined future expenses like a child’s wedding or a planned international trip. Each instrument has its role. None is universally better.

The mistake many investors make is treating all fixed income as interchangeable, parking everything in FDs because they are simple and familiar. Understanding the full range, including open-ended debt mutual fund options and their relative merits, is part of building a retirement portfolio that actually holds up over 25 to 30 years of retirement.

Not Sure How to Structure Your Debt Allocation for Retirement?

The right mix of FDs, debt funds, SCSS, and other instruments depends on your retirement timeline, tax bracket, and income needs. If you are 45 to 60 and want a debt allocation that is actually built for retirement rather than just “safe-feeling,” let us think through it together.

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Frequently Asked Questions

Are FMPs still tax-efficient compared to FDs in 2026?
Not in the way they used to be. Since April 2023, FMP gains are taxed at slab rate, the same as FD interest. The old indexation and LTCG advantage is gone. FMPs retain one smaller advantage: FD interest is taxed annually on accrual, while FMP gains are taxed only at redemption.

Can I withdraw from an FMP before maturity?
Not easily. FMPs are closed-end schemes. You can sell units on a stock exchange, but liquidity is typically very poor. Plan to hold FMPs to their stated maturity date.

Are FMPs safer than bank FDs?
No. Bank FDs are insured by DICGC up to Rs. 5 lakh per depositor per bank. FMPs carry credit risk on the underlying bonds they hold. If a bond in the portfolio defaults, your returns are affected. FDs from scheduled commercial banks carry effectively zero credit risk for amounts within the insurance limit.

What is the current FD rate for senior citizens in 2026?
Senior citizen FD rates vary by bank and tenure, typically 0.25 to 0.5% higher than general rates. As of early 2026, several banks are offering 7.5 to 8% for senior citizens on 1 to 3 year FDs. The Senior Citizens Savings Scheme at 8.2% remains competitive and is government-backed.

Should I break my existing FMP bought before April 2023?
FMP units purchased before April 2023 and held for more than 36 months still qualify for the earlier tax treatment at redemption, subject to specific rules applicable at that time. Do not exit old FMPs prematurely based on the new tax rules without consulting your advisor on the specific applicable rates.

What are the alternatives to FMPs for fixed income investing?
Open-ended debt mutual funds offer similar underlying exposure with much better liquidity. Target maturity index funds provide predictability similar to FMPs while being open-ended. For guaranteed returns, bank FDs and government schemes like SCSS, PPF, and NSC remain reliable anchors for the conservative part of a portfolio.

Before You Go

Related reading: Mutual Fund Taxation in India: Complete Guide and What Are the Benefits of Mutual Funds in India?

Do you currently hold FMPs or FDs? Has the 2023 tax change affected your debt investment strategy? Share in the comments below.

One question for you: Is the fixed income portion of your retirement portfolio structured for what the tax rules are today, or for what they were five years ago?

80 COMMENTS

  3. Dear Sir ,
    I am put some money in the FMP in 1 April 2014 ans its Maturity is come on 1 April 2017 A mount i am invested is RS 5 Lacs & MAturity Amount is 656466.187, What is the TAX CALCULATION, Please reply on my Email.

    • Hi kirtidhwaj,
      There will be 10% tax on capital gain(without indexation) or 20% tax on capital gain (with indexation).

  4. Sir,
    I am a resident Indian.I know that the FD interest of many other countries are very high (up to 25%). May I invest in any way or through any investment vehicle to those fixed deposits?

  6. I have a question. How do we account FMP while filing IT returns. Are the online tax filing websites smart enough to handle tax on FMPs in a manner different from fixed deposits. If we mention FMP interest earned simply as fixed deposits during online tax filing, we will not get taxation benefit and I’m not sure if tax websites allow to enter FMPs separately and treat these separately.

    • Dear Rajesh,

      Any gains in FMPs is counted as capital gains which is taxed seperately. In all ITR you have provision for showing capital gains income from equity,Debt ,real estate or gold. Hence there will be no problem when you are filing ITR.

  7. Hi

    Its a great article, just want to know 2 things:

    1. Does making investments in the middle of the year in FMPs for tenure more than 12 months makes sense?
    2. If yes, then how to identify good FMPs and can u suggest some of them already available in the market?

    • Dear Varun,

      You should look FMPs as investment avenues for specific period.Whether you invest in beginning of year or at middle of the years should not be a concern.It should meet your desired objective.
      You need to look at previous FMPs and their portfolio. The composition tells you where is the company taking exposure. Some FMPs invest in low rated securities too to boot the yield from the product.

  8. One can invest in FMPs through mutual funds either (i) online from their website if you alreday have registered form the same or (ii) by submission of paper application form to their offices. Alternatively, you can get registered for some portal like fundsindia etc which offer a common investment platform for many mutual funds without charging any fees.
    For details of FMPs being launched from time to time, you can visit http://www.amfiindia.com/nfo.aspx for a listing of FMP NFOs being launched.
    I hope this anwers the query.
    Hemant

  10. Hi
    I just wanted to share my experience of today.
    I asked one of the CA(s) in our office that where from I can invest in FMP.
    The reply was, ” FD(s) are available with all banks and post offices.”
    To which I said, ” Sir, FD & FMP are different”. He said, ” No madam. You may use different terms but there is no difference in these two words.”

    Now I thank God I came accross this website as I fully understand that even a Chartered Accountant is not wise enough to seek financial advise. 🙂

    But my question is still unanswered so please guide Hemant.

    Regards,
    Nishi

  11. hi hemant
    I was very confused about FMP but got some idea about this from yout articles and and some related reply. perhaps it is not for small investors and second if small investor choose to go fmp bia web like icicidirect one cannot fetch even general return as commission of such typae of potals is very high. thankyou

  12. I have some questions reg FMP.
    HDFC has new FMP which opens on 30Mar12 and closes on 3Apr12. If I apply for it on 30Mar12, will it help me get benefit of double indexation. Whether the date of application is to be taken for computation of tax or date of closing of offer or date of allotment.

  13. please suggest a pension plan and give clear calculations like how much investment amount and how much pention will be available also with years
    my age is 33 years

  15. Is it a good idea to invest in FMPs before 31 March, 2012 inspite of what is there in Budget/expected DTC? The same reasons hold good now also.

    Are there any good FMPs in the market presently where we can invest before 31st March. Is HDFC the best of lot?

  16. Hi Hemantji
    I have to invest Rs. 40000.00 for tax saving purpose. Pls suggest me the best product available in the market, like FMP , ELSS, FD etc. Lock-in period is maximum 5 years.
    Thanking you

  17. Dear Hemant,
    Can you please clarify one aspect about impact of proposed DTC on FMP returns and that is FMPs wtih dividend option. Will the dividends on FMPs continue to be tax free in the hands of the investor even in DTC regime? If it is so, then even after parting with the near 15% dividend distribution tax, investors in 30.1% tax slab may benefit themselves through dividend FMPs till they align themselves with FMPs of proper duration and time slot so as to avail single or doule indexation.

    • Hi Hemant,
      It looks that even after DTC, investing in FMPs will make sense.
      On dividend side there are no changes but indexation benefit will be reduced by 1 year.

  18. I really like this article.

    However, since I’m new to this indexation etc, I could not understand the calculations of Indexed Cost of Aquisition (1,10,250). Can you please help me understand?

    Can you also please explain about tax implications for Dividend options of FMP for less than 1 year (and may be more than 1 year also)?

  19. I must admit this is a very well researched and well written comparison of FMPs vis-a vis Bank Fds. Very useful for investors who are in a dilemma as to which will be the best investment option that suits their investment needs. Keep up the good work, All the best!

  20. Hi Hemant,

    I wanted to ask that i have a demat account with ICICIdirect and carry out my SIP transactions through the same. If i start a FMP through ICICIdirect, i’ll have to pay brokerage for it, which is around 1.6% i guess. That already takes some part away from the investment. Please suggest me something on this. Should i invest in the FMPs by some other means?

  21. Hi Hemant!

    In case of the person whose income doesn’t cross the tax limit, what will be the better option for long period of time ie+3 years.

  24. Hey Hemant,

    Of late I have been doing some research on FMP as a new tool of investment as I am already invested in MF, Stocks, ULIP (not a great tool though) and FD.

    I have a few questions for which I couldn’t find answers . If you can provide any insight into these points it would be simply great!

    1. Now that the interest rates are at the peak. May be one more round of increase would be there. So, in this scenario is it the right time to invest in FMPs?

    2. What is the provision for FMP in new DTC? Will a 1 year FMP be more beneficial or a 2 year FMP at this point in time keeping DTC in mind?

    Thanks
    Lakhwant

  25. Hi Hemant,

    I had go-through your complete article and all the posted comments but still having some doubts.
    1. Compare to a bank FD will the return is higher in FMP.
    2. If the FMP not performed well. In that case is there any chance that the amount I had invested will decrease at the time of withdrawl.
    3. As you have a great experience of it have you ever seen that the investment in FMP will not return good result in time of more then 2 yrs. What my concern is, just to know that if i invest a lumsum amount of 100000 will i get much benefit compare to a FD of 3yrs in bank.

    What you will suggest should we go for FMP or FD. Because here iam unable to take decision.

    Rgds,
    Munish K. singh

  26. Hemant,
    Good article and nice follow up with readers. Explains FMP quite holistically.
    In summary, it appears like FMP should be a good investment tool at end of the finaicial year to invest the last remaining money, considering the double indexation benifits.
    Would be good to see a follow up article once the impact of direct tax code becomes clear.

  27. Which FMP do u recommend me 2 invest Rs.7 lacs on 12-5-11 Sir? 1 person frm ICICI AMC suggestd ICICI FMP SERIES56- 1YR PLAN F-370days-Indicativ Yield: 9.25-9.5%p.a. NFO Last Dt.: 18-5-11. R ther any such comparabl plans? Pls reply asap,Thanx again Sir.

  29. Hello Hemant
    First up, many thanks for so many simple yet very informative articles on your website. I have a couple of questions on this article though:

    1. I may not have understood the Indexation benefit correctly, but isn’t it that if we take a 13 month FMP during any time of the year, it will still extend into two financial years and will thus benefit from indexation? Wondering since your article mentions that it is a better idea to invest in March for indexation benefit.
    2. Please explain the Dividend Option and Growth option. Should we always opt for Growth Option considering the lower tax rate?

    Thanks
    Punit

    • Hi Punit,

      Great you noticed it – means you are serious about your investments.

      Regarding your 1st question – yes 13 months means you can take indexation benefit but that will be single indexation benefit. When you invest in march for 13 months – you can enjoy benefit of double indexation.(means almost tax free

      In debt funds one should go for growth option if horizon is more than 1 year.

      • Hi Hemant,

        What I could conclude from your article and this response is that to get 1 indexation benefit, your FMP should span 2 financial years, means it is invested in one FY and matures in other FY. But to get 2 indexation benefits, the FMP should span 3 FYs, means it is is invested in FY1, remains invested in FY2, and matures in FY3. This expalins why a 13 month FD invested in a month other than Mar will get only 1 indexation benefit. Is my understanding correct?

        Regards.

  30. Hi sir,
    I cam through your article, its clear and nicely projected. But i have a doubt here, i have invested 50 k in relaince FMP series 5 and 7 for 3 and 6 month as per my broker advice.

    but after seeing ur artcile i m getting a doubt
    should we go for FMP only for tax benefits? are the reliance 5,7 serioes fmps taxable , can i use it for 80 c deduction in my office? , i am confused , can you thwo some light on it.

    Can you also tell me which is best or which was the best FMP till date?

    • Hi Karthick,

      Let me fist clarify that you cannot use it for tax saving under section 80C.

      Now coming to your investment in FMP – if your horizon was 3 to 6 mths but if your horizon is 3-5 years you should match your horizon with horizon of the product.

      There is no best FMP – actually there is no way that we can compare FMPs. 🙁

    • Hi Hemant,

      SEBI has told Mutual Funds not to share indicative yields. But you can assume yields to be very close to or bit higher than FDs. But taxation make FMPs a better deal.

  32. Good article sir,one clarification for an FMP of April 2011,the double indexation benefit will be available for 370 days FMP as we have two finacial years?Please clarify

  33. Hello Hemant,

    i would like to see your comments on this article please, link
    basically, i believe that whatever Shyam has said makes sense as well. How would you counter his point?

  34. hello,

    could you outline the difference between Certificate of Deposit (CD) and FMP for the following parameters – Liquidity/Taxation/Indexation/DDT with current scenario and post April 2011(w.e to new DTC). I shall highly appreciate the same.

    • Certificate of deposits are offered to investors by banks just like a normal deposits. But the difference is certificate of deposits are short term wholesale deposits and they are tradable.

  35. Very good article explaining the tax efficiency of FMPs vis a vis FD…however I request a clarification to my understanding

    FMP invests in securities/bonds. The income from these securities/bonds should be taxable to the FMP and therefore the gains to investor in FMP is post tax. Capital gains tax are added on top of this. As such ,the returns should be worse than FD.
    Tell me where I am going wrong
    Best regards
    Sirsendu

  36. One more Q, in Fd’s we get fixed returns dcleared, and in FMP, if the FMP not permofing well will i get the indicative returns mentioned or can it be less then mentioned?

    • Hi Vijay,

      In FMPs even you don’t get indicative yields – just you have to assume it on various factors.(which is not possible for investor)

  37. Hi Hemant, vry good articles by you….
    can you suggest some of FMP Mutual funds starting in April 2011.? as they do very less advertising on this so we cant come to know when they starts.
    is it better to invest more than 1 Yr in FMP?
    thanks

    • Hi Vijay,

      If we are comparing it with FD – definitely one should invest in FMPs. If you invest in march it will be more beneficial.(1 extra indexation year)

      You can directly call AMCs to share details about their present & future FMPs.

  39. i want to invest 1,00,00,000 fmp in bank on tomorrow which will give 10.2% interest so maturity value is 1,10,20,000.. will i take this calculation for AY 11-12. and if it is loss can i set off with business income

    • Hi Rajesh,

      I think you are confusing FMP – “FMP in Bank” not possible. FMPs are compulsorily issued by Mutual Fund Companies & you will be having capital gain on them – no interest accrual.

      On bank deposits you will get interest & that is fully taxable.

    • Hi Rajshree,

      Will write something on this soon – for time being just remember that if you are investing in debt funds(FMP) for more than 1 year opt for growth option.

  41. I read about FMP in this article. Thanks for sharing such a valuable knowledge to all of us.
    I thought of investing 10000 in “hdfc fmp 370d march 2011” , Is this a good option or should i go for another FMP ?
    one more question…
    For every FMP its written as NFO , So not understanding the difference between FMP and NFO , please clarify are they different and how to identify its FMP?

    • Hi Rajashri,

      You can for HDFC FMP but if you find some FMP which is going to mature after 1st April 2012 will be better.(due to double indexation benefit)

      FMPs are close ended funds so every time AMC have to bring NFO to raise money.

  42. DEAR SIR
    YOU R REALLY DOING A VERY GOOD WORK BY WRITING INVESTMENT RELATED ARTICLES.
    10 DAYS BEFORE 1 WAS HAVING VERY LITTLE KNOWLEDGE ABOUT SIP,ELSS AND OTHER FUNDS BUT NOW THANX TO YOUR ARTICLES THAT I FILL THAT THERE ARE VERY LITTLE CHANCE OF GETTING MISSELLED POLICY BY AGENTS.
    KEEP DOING THE GOOD WORK.
    CAN YOU WRITE A ARTICLE ABOUT WHAT SHOULD BE THE TYPES OF MUTUAL FUND (ELSS/BALANCED/RISKY/DEBT) AND HOW MANY IN A MIDDLE CLASS PERSON EARNING BETN RS 25000-50000/MTH.

    • Thanks a lot Paritosh for appreciating our effort. I will definitely write some article on suggested topics.

      Keep visiting TFL & sharing articles it with your friends. Knowledge increases by sharing. 🙂

  43. Hi,

    Good article. Stands true even after almost one year. I understand that FMP’s are not supposed to declare even indicative returns, but how does an investor estimate likely returns? It becomes very difficult for an investor to differentiate FMPs when there are so many NFOs with similar maturity horizons and almost identical scheme objective. Please throw some light.

    Thanks.

    • Thanks Kinjal.

      Regarding your question – simple answer is we can’t estimate returns as now they are similar to any other debt funds with just one benefit that they don’t have interest rate risk if we hold FMP till maturity.

      But there are still 2 ways which can give some idea:
      1. Compare FMP maturity with some similar data available on other such securities.(not easily available to investors)
      2. AMCs are still sharing returns with distributors.(Yes you can get the numbers un-officially)

    • Hi Rohit,

      FMPs keep coming from time to time – you should match your investment horizon with fixed maturity plan.

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