Most investors prefer to set aside a certain portion of their earnings to cover for specific future expenses that may arise while meeting life goals such as retirement, children’s education, etc. Solution-oriented funds are investment options that can help in allocating funds for such life goals. These unique schemes hire fund managers who take into account the investor’s goals, risk-return appetites and capital appreciation expectations while designing an investment portfolio.
Securities Exchange Board of India (SEBI) guidelines categorises mutual funds into five main streams including equity funds, debt funds, hybrid funds, solution-oriented funds and Gilt funds. With the help of solution-oriented funds, investors can easily customise their investment portfolio to ensure appropriate risk levels while meeting personal financial objectives through capital appreciation of the portfolio.
Investors can avail following benefits through investments in solution-oriented schemes–
Solution-oriented schemes allow investors to achieve specific goals through appropriate financial planning. Any specific and significant expenses that may arise in the future can be covered with the help of returns generated from these schemes. These schemes allow investors to build sufficient corpus to cover big-ticket future expenses like retirement expenses, children’s higher education, etc. Investors can either choose the SIP mode or lump sum investment option for substantial returns in the long run from these funds.
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Equity-oriented solution-oriented funds offer higher chances of substantial returns. Depending on the holding period of the investment, the returns may differ. Debt funds, on the other hand, offer the benefit of higher returns through long-term compounding interest.
Solution-oriented funds often come with a lock-in period of at least five years to ensure that the investment does not get impacted due to any adverse short term market fluctuations. Such a criteria also helps the fund in generating higher returns in the long run. Risk-averse investors can also choose to invest in debt solution-oriented mutual funds to bring down the risk element further.
Investors who want to cover for any specific future goals which may result in substantial expenses should opt for solution-oriented fund investments. These can help in gathering sufficient funds and avoid financial stress on the investor in the future. One condition of investing in solution-oriented funds is to ensure sufficient liquidity for any unforeseen financial needs as solution-oriented funds generally do not have partial withdrawal facility.
Since these funds allow customization of benefits, they are often preferred by investors. Apart from capital appreciation, these funds also offer investment security through risk mitigation strategies adopted by the fund managers.
The two most commonly available solution oriented fund structures in India are mentioned below:
These funds primarily focus on a combination of equity and debt investments with customizations to meet specific risk appetites. Investors can invest in these through the SIP mode. With a mandatory lock-in period of 5 years, these funds do not permit partial withdrawals. Therefore, investors must maintain reasonable liquidity to cover for other expenses while investing in these for meeting their retirement goals. The lock-in period mainly allows sufficient capital appreciation and maximum returns as per the investment timeline.
Many investors set aside some portion of their income for children’s higher education. Then why not invest in children’s funds which can generate higher returns from the same pool of money and help in covering education or other children-related costs in the future. These funds are also SEBI-mandated and therefore offered by most AMCs in India.
Before investing in a solution-oriented scheme, investors should be aware of the following limitations–
Since solution-oriented schemes are generally passively managed, the fund’s performance is tracked to a benchmark index by the fund managers. By focusing on investments in instruments of top performing large-cap companies, fund managers often avoid searching for value securities even if they can be bought at discounted rates. Thus, the lack of active management strategies may sometimes hamper or restrict fund performance.
As compared to some of the top open-ended schemes, solution-oriented funds lack in performance. Open-ended schemes tend to have stronger portfolios and closely-monitored asset allocation.
Since solution-oriented mutual funds do not allow partial withdrawals before completion of the five year lock-in period, investors may not have liquidity from these funds. Therefore, in case of emergencies investors may have to rely on other sources of funds or set aside a separate corpus for the same. Investors also cannot switch funds during the lock-in period, making it difficult to achieve higher capital appreciation even if an opportunity arises.
Solution-oriented funds are taxed similar to equity and debt mutual funds. There is no tax on periodic dividend payments, however, any capital gains arising from purchase or sale of assets in these funds are subject to taxation as per the income Tax Act of 1961.
Short-term capital gains tax at 15% is applicable to gains made from these funds within 1 year of investment. If the holding period is more than 1 year, long-term capital gains tax at the rate of 10% is applicable to capital gains. Long-term capital gains of under Rs.1. lakh are not taxable.
Short-term capital gains arising from securities resale during a financial year are taxed at the applicable income tax slab rate. Long-term capital gains tax is applicable at 20%, after adjusting for indexation. This is applicable on profits from debt securities held for more than one financial year.
The investment objective of the scheme is to achieve long-term capital appreciation through investments in equity and equity related securities. The scheme also invests in debt and money market instruments with an objective to generate income.
| Inception Date | September 29, 2020 |
| Expense Ratio (Direct) | 1.01% |
| Fund Manager | R. SrinivasanDinesh AhujaMohit Jain |
| Risk level | Moderately high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 23.47% | 15.46% | 9.82% | 11.67% | 12.68% |
The investment objective of the Gift Plan is to seek capital appreciation by establishing a portfolio primarily invested in equity and equity related securities along with debt and money market instruments.
| Inception Date | January 01, 2013 |
| Expense Ratio (Direct) | 1.65% |
| Fund Manager | Manish BanthiaAshwin JainRitesh LunawatPriyanka Khandelwal |
| Risk level | Moderately high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 34.33% | 17.63% | 10.65% | 10.54% | 13.75% |
The scheme aims to provide long-term capital growth through a judicious mix of investments in large-cap stocks, mid-cap and also small-cap stocks combined with quality debt securities, including government securities.
| Inception Date | January 01, 2013 |
| Expense Ratio (Direct) | 1.41% |
| Fund Manager | Marzban IraniKaran DoshiYogesh Patil |
| Risk level | Very high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 32.00% | 17.86% | 11.52% | 8.91% | 10.82% |
The fund aims to provide a financial planning tool for long term financial security to investors who want to focus on their retirement planning goals.
| Inception Date | January 01, 2013 |
| Expense Ratio (Direct) | 0.66% |
| Fund Manager | Murthy NagarajanSonam Udasi |
| Risk level | Very high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 32.83% | 22.47% | 12.20% | 14.68% | 16.98% |
The scheme aims to offer capital appreciation and consistent earnings to investors aiming for retirement goals. It invests in a mix of securities, such as equity, equity related instruments and fixed-income securities.
| Inception Date | February 11, 2015 |
| Expense Ratio (Direct) | 1.06% |
| Fund Manager | Sanjay DoshiPranay Sinha |
| Risk level | Moderately high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 10.21% | 8.15% | 9.88% | 7.85% | 8.20% |
The scheme aims to provide long-term capital appreciation and income through investments in a mix of equity and debt instruments. It aims to help investors meet their retirement goals.
| Inception Date | February 25, 2016 |
| Expense Ratio (Direct) | 0.98% |
| Fund Manager | Shobhit MehrotraChirag Setalvad |
| Risk level | Very high |
| 1-Year | 2-Year | 3-Year | 5-Year | Since inception |
| 57.55% | 31.80% | 18.44% | 17.57% | 21.63% |
Investors should consider the average predicted returns of selected schemes and associated risk factors before making an investment in a solution-oriented scheme. It is also important to consider the nature of securities selected in the corpus (equity or debt). This can help in gauging the potential rate of return that can be generated through the investment.
Depending on individual preference and investment goals, one can opt for either a liquid fund or a solution oriented fund. Liquid funds allow investors to withdraw from the investment at any time, whereas solution oriented funds generally have lock-in periods resulting in lower liquidity.
You can invest in solution oriented funds by downloading the Fisdom app on your smartphone. This app allows access to a vast variety of mutual funds as per your investment goals, preference and risk-return appetite.
One can opt for retirement investments, including bank FDs, tax-free bonds, senior citizen’s savings scheme, Post Office Monthly Income Scheme, etc.
Solution oriented mutual funds do carry varying degrees of risk since these invest in a combination of equity and debt securities. Equity exposure means risk of market fluctuations, and debt exposure means risk of interest rate movements.
Yes, you can invest in these funds via the SIP mode if you want to have more liquidity in your hands as compared to investing a lump sum amount that is locked in for 5 years.
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