You must have often come across fixed maturity plans (FMP) with a maturity term of 3 years and 10 days. Why do they do this? Such funds are issued around the end of March and then redeemed in the first week of April after 3 years. This way, you hold the debt funds for 3 years but get the indexation benefit for 4 years. That is how FMPs are normally planned and issued to investors.

A very important benefit that debt funds use quite often is the benefit of double indexation. Here is how it works. You enable the investor to buy the debt fund close to the end of the fiscal year and then redeem it after 3 years a few days after April 01st. Effectively, your holding period will be 3 years and a few days only but then you will be getting the benefit of indexation for 4 years. Let us see how this works in practice.