The first question when investing is why are we investing? What are we investing in? What is the purpose that investment will cater to? Why are we not spending from our earnings and keeping aside some of our earnings for the future? Four main reasons come to mind: Financial Stability, Financial Independence, Building One’s Wealth and attaining our future goals. So, finding solutions to our future financial goals becomes our sole purpose. To achieve that many mutual fund houses provide us a better investment option in the form of a solution-oriented mutual fund.
Solution-oriented Mutual Fund helps us to invest for a specific goal. Doing that increases our financial discipline, ensures patience, and develops perseverance. The reason is pretty simple: we will hardly touch the corpus invested for a specific purpose until the goal is achieved, ensuring long-term goal investing. Solution-oriented mutual funds are designed for long-term wealth creation and specific objectives of retirement planning and a child’s future planning.
So, Why should one Be Investing in Solution-Oriented Mutual Funds?
It is always observed that investors tend to keep on withdrawing from the funds invested for the long term, for short-term commitments, which disturbs the wealth creation cycle. The advantages Solution Oriented Mutual Funds provide are:
Purpose: The power of purpose while investing keeps us disciplined and patient. If we are committed to a specific purpose we generally tend to put all our energy and resources into achieving that purpose. Solution-Oriented Mutual Funds help to achieve that purpose.
Wealth Creation: When investing in solution-oriented funds, the focus is generally on the long term. Solution-oriented mutual funds have significant exposure to equity and equity-related investments. Equity as an asset class has been the best wealth-creation tool. By investing in solution-oriented funds there is a potential to create long-term wealth.
Diversification: Solution-oriented funds not only create wealth but also provide diversification to our portfolio. It not only invests in Equity but it invests in Fixed-income securities as well. Equity provides long-term wealth but is highly volatile in the short term vis-a-vis fixed-income securities providing stability to the portfolio with relatively lower volatility.
Attain More through Less: When investing in Solution-Oriented funds the goals are generally long-term. To create long-term wealth one can start with a small amount and still will be able to achieve long-term wealth through the power of compounding.
Now let's talk about the two different Solution funds available for investors,
Retirement Fund - Most of the mutual fund houses offer lump sum and Systematic Investment Plans to the investors to save and invest for their retirement. Investors as per their risk appetite can choose between Equity, Hybrid and Debt Oriented schemes. These are open-ended mutual fund schemes with a lock-in of 5 years or till retirement age (whichever is earlier). So investors are not able to withdraw from such funds which ultimately leads to wealth creation as the invested corpus remains undisturbed.
Children’s Gift Fund - The children’s gift fund helps the investors for their future and helps them achieve goals like a child’s higher education, a child’s marriage or any other long-term goals. In this category, too investors can invest in lumpsum or through systematic investment plan. These are open-ended schemes with 5 years lock-in. or till the child achieves the age of maturity (whichever is earlier).
Investors according to their risk appetite can choose to invest in equity, hybrid or fixed-income funds.
Nature of Solution-Oriented Mutual Funds
Once you have understood that there are generally two plans of solution-oriented funds one is retirement and the other is children’s gift fund. These two plans are furthermore divided into three different categories based on allocation.
Equity-Oriented Funds - As the name suggests, equity-oriented funds invest majorly in equity-related instruments. The risk factor of these categories tends to be high but the investors also benefit from the high returns this asset class provides. If you want to make good wealth creation for your retirement or your children’s future investors can choose to invest their funds in equity-oriented solutions. Below is the list of a few Equity Oriented Mutual Fund schemes with their performance.
Performance of equity-based solution-oriented funds over 5 years
Scheme name | 5-Year CAGR (%) |
Aditya Birla SL Bal Bhavishya Yojna | 12.53 |
ICICI Pru Child Care Fund-Gift Plan | 16.21 |
LIC MF Children's Gift Fund | 12.77 |
Tata Young Citizen Fund | 18.23 |
UTI Children's Equity Fund | 17.25 |
Aditya Birla SL Retirement Fund-30 | 12.65 |
HDFC Retirement Savings Fund-Equity Plan | 22.79 |
ICICI Pru Retirement Fund-Pure Equity Plan | 22.88 |
Nippon India Retirement Fund-Wealth Creation | 14.81 |
Tata Retirement Sav Fund - Prog Plan | 15.94 |
Tata Retirement Sav Fund - Mod Plan | 14.84 |
Category Average - Large Cap Fund | 16.68 |
Category Average - Flexi Cap Fund | 17.66 |
BSE 500 - TRI | 19.22 |
BSE 100 - TRI | 17.12 |
Hybrid-Oriented Funds: These are generally balanced funds which will invest both in equity and fixed-income securities. These funds are suitable for investors who are looking for comparatively lesser risk in their investments. Also, these funds are less volatile than equity funds and generate lower returns compared to equity funds. Below is a list of a few Hybrid Oriented Mutual Fund schemes with their performance.
Performance of equity hybrid solution-oriented funds over 5 years
Scheme Name | 5-Year CAGR (%) |
Axis Children's Gift Fund | 11.86 |
HDFC Children's Gift Fund | 17.72 |
Aditya Birla SL Retirement Fund-40 | 12.65 |
HDFC Retirement Savings Fund-Hybrid-Equity Plan | 17.9 |
ICICI Pru Retirement Fund-Hybrid Aggressive Plan | 17.97 |
Category Average - Aggressive Hybrid Fund | 15.38 |
Fixed Income Oriented Funds: Investors who are looking for a conservative portfolio and are planning to invest for the long term for their retirement or their children’s future can invest in fixed income-oriented funds. Fixed Income / Debt securities act as liability for issuing companies, and hence such expenses are paid from their annual revenues. These funds are low-risk compared to equity and hybrid funds. Below is a list of a few Fixed Income Oriented Mutual Fund schemes with their performance.
Performance of debt hybrid solution-oriented funds over 5 years
Scheme Name | 5-Year CAGR (%) |
SBI Magnum Children's Benefit Fund-Savings Plan | 12.01 |
UTI Children's Hybrid Fund | 10.68 |
Aditya Birla SL Retirement Fund-50 | 5.76 |
Franklin India Pension Plan | 9.4 |
HDFC Retirement Savings Fund-Hybrid-Debt Plan | 9.93 |
ICICI Pru Retirement Fund-Hybrid Cons Plan | 10.58 |
Nippon India Retirement Fund-Income Generation | 7.38 |
Tata Retirement Sav Fund - Cons Plan | 14.84 |
UTI Retirement Fund | 12.23 |
Category Average - Conservative Hybrid Fund | 9.49 |
Taxation: For long-term equity investors if one is invested for more than 1 year he/she will be taxed 10% on profit. For Debt-oriented funds, if one stays invested for more than three years he/she is a resident investor and will be taxed at 20%. ( with indexation - even if he/she falls in the 30% bracket ) It means the tax levied only on the profits after adjusting for inflation. For example, if you earn profits of 10% out of which 6% is inflation (measured by CII) you will be taxed 20% on only 4% profit.
So, If you want to invest for long-term goals for your retirement or your child's future with a very disciplined approach, If you are looking to balance between potential growth from Equity and relative safety of Debt, Alos if you are looking to build a diversified portfolio you can opt for Solution oriented Mutual Funds be it got your Retirement or for your Child’s Future.
コメント