If you are planning to invest in Fixed Maturity Plans, think twice. Because most mutual fund managers believe that FMPs are unlikely to give higher returns as they did last year.

According to Mohit Verma, chief investment officer, debt, JM Financial [Get Quote] Mutual Fund, "None of the FMP schemes started this year has offered returns of over 10 per cent."

And, this is beginning to show in their collections as well. In March 2007, FMPs had collected Rs 30,869 crore (Rs 308.69 billion). In March 2008, they attracted only Rs 21,688 crore (Rs 216.88 billion).

Even in April this year, 62 schemes collected only Rs 1,126 crore (Rs 11.26 billion), compared to Rs 10,873 crore (Rs 108.73 billion) raised by 55 schemes in April 2007.

Last year was an exceptional one for FMPs as they offered over 12 per cent (post-tax returns of 10-10.25 per cent) returns to the investors. This was because short-term yields were quite high.

"Buoyed by this, many investors are expecting that this year also there will be products that will give higher returns. But it does not seem likely in the near-term," added Verma.

Another reason why FMPs were doing well was that many of these schemes were investing in high-yielding corporate bonds being offered by real estate companies.

However, this year FMPs have become more risk-averse. They are staying away from such bonds offered by real estate companies and non-banking financial companies for the fear of default.

FMPs are close-ended debt products that invest in corporate and government bonds, money markets and fixed deposits with banks.

Though not guaranteed, the returns in these products can be predicted. FMPs invest in instruments that have a pre-determined yield at the time of maturity. The scheme tenure is pre-specified.

These schemes also offer tax benefits. If one invests in an FMP for over a year, there are double indexation benefits.

For instance, if an FMP is bought in May 2008 and is to be matured in June 2009, the investor will get inflation index benefit for two years. One for 2007-08 as the money was invested in that year, and the other for 2009-10.

Ramkumar K, Senior Vice-President and Head, Fixed Income, Sundaram BNP Paribas, said, "FMPs, being close-ended schemes, longer duration too adds to their unattractiveness. At present, about 40 per cent of the schemes are long-term (over one year) to take advantage of the double indexation benefits."