Can Solution-Oriented Funds Realise Your Financial Goals? Can Solution-Oriented Funds Realise Your Financial Goals?

Any investment action must begin with a goal in mind. And by goals we mean financial objectives where your dreams can become reality and be measured in rupee terms to align with future costs. Vardan Pandhare helps you make informed decisions to attain your financial goals via mutual funds

Several financial planners rely heavily on the power of mutual funds to help investors meet long-term and medium-term financial pursuits. With a plethora of options like direct equities, debt, gold and endowment policies readily available in the market, the preference for many investors has been for solution-oriented mutual funds. Let’s find out why. Entering a fresh year, all of us will look for monetary acknowledgement for the hard work done in the past year along with recognition and appreciation. Salary increments and bonuses do bring joy and happiness and empower you with a better lifestyle and fulfil numerous short-term materialistic wishes.
However, if you wisely utilise your extra income, it will be of benefit in the interest of your long-term financial wellbeing and help in accomplishing more critical and extensive financial goals in life. These can be buying a home, children’s education needs, retirement or even a foreign trip you have always dreamt of. In simple terms, it may facilitate the path to wealth-creation provided you are investing your hard-earned money wisely. Thus, you need effective investment avenues such as solutionoriented mutual funds to grow your wealth steadily and at a faster pace than inflation.

Deep Dive into Solution-Oriented Funds

Over the past three decades, mutual funds in India have increased monetary stability and assisted investors in achieving their financial goals. Pure equity, debt or hybrid mutual funds can help investors achieve goals like long-term and short-term capital appreciation and wealth-creation, but to help investors reach composite goals like retirement planning or children’s higher education, mutual fund houses offer solution-oriented funds that are strictly designed to accomplish particular goals. Mutual funds that focus on finding solutions make it easier to invest for corpus preservation or capital appreciation to pay for specific future expenses.

Investors’ financial objectives, anticipated returns and risk tolerance are taken into consideration by fund managers of solution-oriented schemes when building a portfolio that will produce the maximum yields in line with their expectations. Equity funds, Debt Funds, balanced hybrid portfolios, solutionoriented funds and others are the five basic categories of mutual funds that are offered in India, according to the Securities Exchange Board of India (SEBI). Individuals have the advantage of selecting unique portfolios under solutionoriented funds based on the risk involved and the main objective of investment.

Types of Solution-Oriented Funds

Retirement Funds — For millions of investors, achieving financial independence in the post-retirement period is one of their top priorities. Numerous AMCs in India have designed their schemes for this particular reason in a practical, dependable and creative way to cater to the needs of retirement planning. Every retirement fund employs a different approach to strengthen seniors’ financial position. Retirement mutual funds seek to assist retirees financially by amassing capital during the earning years. By choosing high-risk equities for the portfolio when the investor is still young and in the earning stage, these funds adhere to an aggressive style of investing. High-risk equities provide considerable value to the investment because retirement is typically more than 15 years away, allowing for the building of more wealth for retirement planning.

The corpus is typically moved to a moderate or conservative plan with a less risky portfolio when the investor gets closer to retirement age. When the age of retirement arrives, the investor would have accumulated enough funds through the aggressive plan, and hence a defensive portfolio can conserve the gathered quantity and add regular income through debt securities. Simply said, when more money is gained using high-risk instruments, the risk in the retirement planning fund’s portfolio decreases. To preserve financial stability in the post-retirement period, these funds permit redemption either as a lump sum payment or by recurring withdrawals. These funds have a five-year lock-in period, and if they are redeemed before retirement or on turning 60, an exit load fee is applied.

Children’s Fund — A children’s fund intends to provide your young ones with financial support up till the end of their education. India’s educational system is becoming more and more expensive, making it difficult for an average citizen to afford the enormous education expenses. This might cause parents to experience abrupt financial instabilities while preventing youngsters with learning potential from pursuing their ambitions of further education. Planning and taking the necessary action at appropriate times can assist in avoiding this kind of disruption.

Mutual fund AMCs in India offer structured mutual funds that are focused on helping families plan for their children’s schooling and other financial needs. These funds employ a special method to build up their corpus gradually and steadily when the child is still young and their expenses are minimal. The invested money can be used later when the child is old enough to receive expensive schooling or other forms of financial aid. These funds may or may not use different plans with varying portfolio structures to achieve their purpose. To properly prepare for your children’s future, the investment must be started either before or immediately following the birth of the child.

The majority of children’s mutual funds have two distinct strategies, one of which is debt-oriented and the other of which is equity-oriented. The equity-oriented plan, which can offer higher long-term returns, can be chosen if the child is still a baby or is going to be born. Children who are set to finish primary school are eligible for debt-oriented plans. The investment between both programmes can be shifted depending on the age of the child. In most cases, the aim is to build up funds for higher education in a reputed university abroad. Of course, education loans are available for higher studies but savings can help in avoiding high interest rates or creating the burden of payment within a specified period.

The Benefits
Some of the benefits of investing in solution-oriented funds are as follows:

■ They help in planning your finances. To prepare for any significant expenses in the future, solution-oriented schemes are primarily established as safe instruments for financial planning. Individuals can invest regularly through a SIP plan or in one big payment to earn significant returns to develop a solid corpus for retirement needs, or to fund their child’s higher education or marriage.
■ There is a lower risk factor. A solution-focused plan typically has a five-year lock-in period. This enables the corpus to weather any short-term negative stock market volatility and produce significant returns over the long term. Additionally, debt mutual funds, where the risk component is further lessened, are another option for solution-oriented mutual funds in India.
■ They offer greater yields. High returns on investments are possible for solution-oriented funds that invest wholly or primarily in equities securities. Through such solutionfocused plans, substantial corpus amount appreciation assures the highest possible returns on overall investment.

The stipulated holding time of the scheme, which eliminates any short-term market fluctuations that would have a negative influence on the portfolio, might also be credited with these substantial gains. Through the long-term compounding interest feature, debt funds also benefit from these advantages for a minimum of five years. Mutual funds that focus on debtoriented solutions consequently produce significant returns for investors, assisting them in meeting any future financial needs.

The Restrictions
There are some restrictions too which you must note:

■ Passive Administration: In most solution-oriented schemes, the portfolio manager aims to mirror the performance of a benchmark index using passively managed mutual funds. Accordingly, and largely, such investment portfolios are made up of securities from the best-performing Large-Cap corporations in a country. Such a corpus prevents people from purchasing value securities that are on the market at a discount and have the potential to yield enormous profits in the future.

■ Lock-In Period: Solution-oriented schemes are often closed-ended mutual funds, where the investment is fixed for five years. Investing in these mutual funds can be challenging because their NAV is frequently vulnerable to changes due to the stock market’s cyclical movements. Such strict lock-in periods sometimes disfavour investors because they prevent cash from being removed in case of emergency, necessitating significant financial resources.

Final Word
So the important question is whether you should invest in solution-oriented funds? Mutual funds that focus on solutions are designed to achieve a particular objective. The funds’ portfolios are constructed in such a way that the investor does not need to invest in another scheme to achieve that specific goal. These funds make it easier to budget for certain objectives. For example, equity-oriented plans must be chosen for long-term objectives because these funds can be risky for short-term investing, whereas debt-oriented funds must be chosen by those who intend to invest in solution-oriented mutual funds for short-term goals. For investments to grow, solution-oriented funds must have long enough investment tenure. 

For a positive outcome, investors must begin investing as soon as possible. Longer investment periods result in lesser risk, but high returns are not guaranteed and the performance of solution-oriented funds is subject to market risk. The likelihood of earning better returns, however, increases if the funds are selected wisely and the investments are started at the appropriate moment. The financial load that will be incurred in the future must be anticipated by every wise citizen. Financial imbalances can be prevented by properly planning for future expenses. The investor can experience a better tomorrow by spending less and by investing in mutual funds for long-term goals like retirement planning and children’s education.