The term "fixed deposit" needs no introduction. We all know, the globally accepted term is an unchangeable amount of money that is deposited at a financial institution for a fixed period of time at a certain rate of interest throughout the period. On the other hand, Fixed Maturity Plans are great short term investments that also offer viable returns for those who come under higher tax bracket.

One of the thumb rules of a fixed deposit is that the longer the capital is invested; more are the returns to be yielded. The rate of interest on investment is often decided on the basis of principal amount and the period of such fixed deposit. Usually, it is the financial institutions involved, such as banks and other lending institutions, work upon the interest rate.

People who are keen to speculate and all kinds of investments do get lured by them and generally go for fixed type of deposit so as to benefit from the fixed deposit rates. Nevertheless, the capital is unchangeable, it is the additional amount of money in the form of interest that is credited to their account on a certain date every month.

Lately in India, fixed deposits have attracted many takers. And with the surfacing of Fixed Maturity Plans or FMPs, the banks now have two similar instruments to operate with. While FMPs as well as fixed deposit have very little in common, there are certain dissimilarities that cause them head either ways. FMPs were introduced on January 1, 2001 and took no time to popularize. Another version of fixed deposit as people quoted it back then, FMPs were greatly attractive, they are pretty debt oriented.

Fixed Maturity Plans can be called as ‘closed-ended' mutual fund scheme that come with a maturity period that can vary from a few days to at the most five years.

In simpler words, if you are seeking to benefit from the FMPs, you can choose to invest in your money for 2-3 days or five years as a whole. When the maturity period is over, FMPs offer two alternatives – growth and dividend, just like fixed deposits, and you may have your money in either of the ways.

One may wonder at some point of time – the difference between FMPs and Fixed Deposits. The bottom line is there is no difference besides that of tax friendliness. While FMPs are subjected to tax reductions, bank fixed deposits are not affected whatsoever by the tax rates. For example, the invested amount is Rs 100 in both the cases, with returns at 10% for a year, the interest at the end is Rs 10. Though, net interest after tax in case of FMP would work to Rs 8.6 and Rs 6.6 in case of bank fixed deposit.

As Fixed Deposit is by far one of the best, secure and easy ways to invest in money and reap great benefits, more and more economy-minded people have been going for such a type of investment in capital, hence stabilizing the money market in India to some extent. And if you fall in the higher tax bracket, make sure you move to FMPs.