What is Solution Oriented Mutual Funds?

Are you worried about your retirement plan or are anxious about being able to pay for your child’s education? You don’t need to worry anymore because there exists a type of mutual fund to get you out of your misery. This specific type is called “Solution Oriented Mutual Fund,” it aims to meet your two most important financial needs responsibly, i.e., children education and retirement planning. 

Solution Oriented Mutual Fund

There are five main categories of mutual funds in India. These categories are equity funds, debt funds, hybrid funds, solution-oriented funds, and other schemes.

Solution Oriented Mutual Funds are made to help investors reach their particular financial objectives. The preparation for retirement and the building of funds for the future needs of the children are the financial goals here. Typically, these funds have a five-year lock-in period. They often invest your money across a range of asset types, including debt and equity, to protect and increase your capital. 

Types of Solution-Oriented Funds

There are two types of solution-oriented funds which are offered by Asset Management Companies in India. They are as follows –

1. Retirement Planning Funds
2. Children’s Gift Funds

So let’s deep dive into the types of solution-oriented funds-

Retirement Planning Fund

The purpose of this fund is to assist the individual in saving money for their retirement corpus. Generally speaking, these funds are locked in for five years, or until the age of retirement, whichever comes first. Your money is invested by the fund manager across a range of asset classes, such as debt and equity. These funds often have two schemes: one that creates wealth and the other that generates income.

Features of Retirement Planning Fund

1. These funds are suitable if you have a long-term investment horizon.
2. Retirement funds have a lock-in period of usually 5 years or until the retirement age of the investor, whichever is earlier.
3. After retirement, investors can choose a systematic withdrawal plan to get a regular income.
4. These funds are managed by professional fund managers; hence they allocate your assets only after thorough analysis.

Performance of Retirement Funds

Based on the retirement fund performance shown above, we can conclude that most of the funds have conservative performance overall. A few funds, like the UTI Retirement Fund, Franklin India Pension Fund, and HDFC Retirement Fund, have shown exceptional performance in 2023, while their performance for the 2022 financial year has been lacklustre.

Children’s Gift Fund

This particular mutual fund type allows investors to accumulate funds for their child’s future needs, including marriage, schooling, and other expenses. Usually, these funds are locked in for five years, or until the child reaches the age of majority. Given the rising costs of marriage and education, saving for the child’s future is essential for financial security and stability of the family.

Features of Children’s Gift Fund

1. The investments are designed to fulfill the financial objectives of the future of the child.
2. Funds invest in a mix of equity, debt and other instruments to provide you an optimum return.
3. They have a lock-in of 5 years or till the child reaches the age of maturity.

Performance of Children’s Funds 

Based on the table above, we can conclude that these funds fared extraordinarily well in 2023 and 2021, generating average returns of almost 25%, while in 2022, they recorded average returns of 2.5%.

Advantages of Solution-Oriented Mutual Funds

1. These funds are considered an important tool for long-term financial planning.
2. Because solution funds have a five-year lock-in period, they are able to reduce the market’s short-term volatility and provide consistency.
3. Historically, the funds have yielded a higher return because of their equity investments.
4. The mutual fund houses professionally manage these funds.

Disadvantages of Solution-Oriented Mutual Funds

1. Due to their lock-in period, it does not provide you liquidity for up to 5 years of investment.
2. A portion of the fund is invested in the equity market, hence it carries the risk of the market.
3. These funds are not designed for the short-term goals of the individual.
4. Some solution-oriented mutual funds are passively managed by asset management companies hence in that case there is little-to-no chance of outperformance of the benchmark.

Who Should Invest in Solution-Oriented Schemes?

Solution-oriented funds are appropriate for individuals who have a specific financial aim and a well-defined investing purpose. With the aid of these funds, you can build up a corpus for long-term needs like retirement and arrange for a child’s education. However, due to the five-year lock-in period that these funds need, you can only consider them as an investing choice if you have a longer investment horizon.

Conclusion

To sum up, solution-oriented mutual fund schemes give investors a way to achieve long-term objectives. It is regarded as an organized investment vehicle for obtaining financial stability. Additionally, as we always advise, do extensive study before making any investing decisions. Alternatively, speak with a financial professional.

Frequently Asked Questions (FAQs)