Solution Oriented Mutual Funds

By Joseph
September 30, 2022

Solution-oriented mutual funds facilitate investment for capital preservation or capital appreciation to cover specified future expenses, such as retirement, marriage, education for children, etc. When creating a portfolio that generates the maximum yields in line with clients’ expectations, fund managers of solution-oriented schemes take into account the financial objectives, anticipated returns, and risk tolerance of investors. The sub-categories under solution-oriented schemes are as follows:-

Retirement Funds

Asset Management Company provides customized investment plans to meet the demands of customers in retirement planning and assists investors in achieving their retirement objectives. As a result, each Retirement Mutual plan seeks to help investors achieve their financial retirement goals. This is accomplished by saving money during their earning period. The Retirement Funds give investors the option to redeem either a lump payment or regular withdrawals that would serve as a pension. This will assist the investor to maintain financial security during his retirement. These funds have a five-year lock-up period and also impose fees on early withdrawals.

Children’s Funds

As the cost of education in India rises by leaps and bounds, it has become increasingly important to save for children’s education. A middle-class family may find it extremely difficult to finance high school fees. Due to financial constraints, this may also prevent a child with exceptional potential from continuing their education. Therefore, careful planning and taking the essential actions at the appropriate moment may help overcome these challenges. Various Asset Management Companies in India have customized their schemes to meet the educational requirements of children. These schemes operate in accordance with the child’s age.


Advantages of Solution-Oriented Schemes 

The following benefits of a solution-oriented plan make it a popular investment tool among investors:

Proper Financial Planning

Solution-oriented schemes are primarily created as a safe instrument for financial planning to cover any significant expenses in the future. Individuals can invest regularly through a SIP plan or in one lump sum to earn significant returns to develop a dependable corpus for retirement needs or to fund their children’s higher education or marriage. For instance, with Kuvera, you can explore various retirement fund options like the HDFC Retirement Saving Hybrid Debt Growth Direct Plan

Limited Risks

A solution-focused plan typically has a five-year lock-in period. This enables the corpus to withstand any short-term adverse stock market volatility, ultimately providing substantial returns over the long term. Moreover, solution-oriented mutual funds in India are also available in the form of debt mutual funds, which further decrease the risk component.

High Returns

Solution-focused funds that invest only or heavily in equity securities may expect high returns on their assets. Through such solution-oriented strategies, a substantial increase in the corpus size yields the best possible returns on investment. Such substantial returns can also be attributed to the scheme’s specified holding period, which eliminates any short-term market fluctuations that might have a negative impact on the portfolio. Debt funds also benefit from these advantages due to the long-term compounding interest feature, which lasts at least five years. By providing investors with significant returns, debt-oriented solution mutual funds allow them to meet any future financial requirements.

Read This to Know: How to Pay Off Debt Faster

Limitations of a Solution-Oriented Scheme

Investing in a solution-oriented scheme is subject to a few limitations: 

Passive Management

Generally, many solution-oriented programs use passively managed mutual funds, with the portfolio manager attempting to mirror the performance of a benchmark index. These investment portfolios comprise mostly instruments from the top-performing large-cap companies in a country. Such a corpus prevents investors from purchasing other securities that are selling at a discounted price in the market and have the potential to yield enormous profits in the future.

Closed-ended Mutual Funds 

Typically, solution-oriented investment plans are closed-end mutual funds with a five-year lock-up period. Investing in these mutual funds can be challenging because their NAV is frequently vulnerable to changes due to the stock market’s cyclical trends.

Liquidity

Any investments made into a solution-oriented mutual fund cannot be withdrawn before the period of five years has passed. Due to the inability to withdraw money in case of an emergency, such strict lock-in periods are sometimes disadvantageous for investors.

Things to Remember Before Investing

Prior to making an investment, it is crucial for investors to conduct thorough research and analysis. Before making an investment, it is important to take into account a number of variables, including the risk involved, the intended financial outcome, and the returns received. Before making an investment in a solution-oriented mutual fund, an investor should keep in mind the following key points:

  1. Financial Objective: Solution Oriented Mutual Funds take an investor’s specific financial goals into consideration. Every investor has a certain financial objective they want to accomplish. Therefore, it is crucial to examine if the investment objective is consistent with the financial goal of the investor.
  1. Fund Performance: Before making an investment, a person should carefully examine the fund’s performance. Investors will see good growth if their fund consistently outperforms the competition.

Fund House and Management: With so many different fund houses in operation, it is crucial to pick the best fund house with expert management. This will guarantee that money is allocated properly. Even in challenging market conditions, the investment will thrive with skilled fund managers directing it in the right direction.





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