Do you need the money for your retirement or perhaps for your child’s education in the future? Well, it could be the Solution Oriented Mutual Funds! You can keep your money in these specialized funds intended for a long-term financial plan with a specific strategy. But how do these operate and with what types are available? Let me add more details to the picture.
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Understanding Solution Oriented Mutual Funds
Solution-oriented Fund is one of the latest mutual fund categories introduced in India by SEBI. It has provided an easier way of financial planning from a long-term perspective. The schemes under this category have been in operation for several years before the formation of the category. These funds were earlier classified under either equity or balanced funds. However, the separate category enables fund managers to employ different strategies and produce distinctive outcomes.
A fund manager of a solution-oriented fund can allocate the fund with equity or debt asset classes as per the investment objective tofurbish the portfolio with equity or debt tools and also has the option to alter the strategy for investors of different generations. When compared with other mutual funds some of the solution-oriented mutual funds also offer tax benefits. Most of the schemes that fall under this category have a lock-in period as the investment period is for the long term.
Solution-Oriented Mutual Funds are a type of Mutual Funds that allow Investors to address certain objectives like retirement or education of their child. These are suitable for achieving long-term goals and may have a lock-in period to ensure their holdings are not traded prematurely, thereby providing a suitable risk-reward profile of the investor’s time horizon and financial situation. The best way to understand these funds is by using a small example of planning a road trip to a distant city, with the help of a travel planner.
The planner takes care of everything, decides on the most suitable pathways, finds the right places to stay, and makes sure you arrive at the destination relaxed. In the same way, Solution-Oriented Mutual Funds address various investments, deal with risks, and assist in keeping you on track towards achieving your financial objectives, for at least retirement or to attain education funding without stressing over managing everything by yourself.
Types of Solution Oriented Funds
Based on the investment objective, SEBI has divided solution-oriented funds into two sub-categories:
1. Retirement Funds
For millions of investors, the ability to continue receiving income in the post-retirement period is one of the main goals. To meet retirement planning desires, different AMCs in India have made plans for this particular purpose in a convenient, reliable, and modern way. Each retirement fund has a different approach on how to improve the liquidity position of the retirees.
Retirement mutual funds are the source of helping the retirees through pooling of the capital at the earning age of the investor providing substantial benefits if invested into during earning age of the investor. These funds employ a growth style of investment by opting for higher risks in the portfolio during the young and earning stages of an investor. Since most investors are planning for their retirement, which is likely to be 15 years hence or even more, marginal value is created through high-risk stocks, and more capital is accumulated to fund retirement.
At the retirement age, the corpus is normally transferred to a moderate or conservative plan under thesame scheme which reduces risk. By the time one reaches retirement age, the investor would have accumulated enough money through the use of the aggressive plan, and therefore a defensive portfolio can preserve the amount accumulated and generate steady income from debt securities.
These can be redeemed either in full or through installments which serve as pensions to enable the investor to sustain him or herself financially in the post-retirement age. These funds come with a lock-in period of 5 years or retirement or attaining the age of 60 years which ever is earlier.
2. Children’s Funds
The children’s fund aims to achieve the social goal of financing the young ones until they complete their education. With regard to the expenditure in India, education costs are increasing day by day and it is very difficult for a common man to pay huge amounts for children’s education. This can start sudden financial problems for parents while others who have brighter futures in terms of learning are locked out of the opportunity to study to achieve their dreams all because of the fee. It can however be avoided if proper planning and other measures required are taken at the right time and right place.
The mutual fund AMCs in India have segmented mutual funds tailored towards facilitating financial planning for children’s education and other requirements of the youngster. These funds operate in a different manner with the aim of accumulating the corpus at a gradual but planned rate when the child is still young, and the expenses are not so high. Sometimes when the child comes for an expensive education or any other financial help the invested capital can be utilized. Some of these funds may or may not employ different plans that may have different portfolio structures to accomplish this objective. The investment must be started before or right after the birth of the child to motivate and prepare a better tomorrow for your young ones.
Many of the children’s mutual funds have two varied schemes, one being an equity-based scheme and the other a debt-based scheme. If the child is young or is about to be born, the equity-oriented plan can be chosen and it can yield more in the future. The debt-oriented plans are for the children who are in the age to complete their primary education. The investment between both plans can be swapped based on the age of the child as well. These funds come with a lock-in period of 5 years or child attaining the age of 18 years which ever is earlier.
Bottom Line
Solution-Oriented Mutual Funds is an investment strategy category that is aimed at enabling the investor to achieve a particular need in the future, such as retirement, education for children, etc. These types of funds have both equity and debt portfolio options and allow people to plan their financial strategy with tax advantages and if locked in, good savings and investment discipline.
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Disclaimer – This article is for educational purposes only and by no means intends to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme related document carefully before investing.
