Equity, debt, and hybrid funds have been around for a long time, and the latest addition to the family is the solution oriented funds. The Securities and Exchange Board of India (SEBI) has defined retirement and children's funds as solution oriented funds.
Solution-oriented funds are designed to achieve certain goals like retirement. The aim of these funds is to create long-term wealth for a specific goal. These funds generally come with a 5-year lock-in period.
The primary aim of this lock-in period is to lower the volatility of the fund inflows and outflows. As these funds work like a close-ended scheme, the manager can focus on the investments rather than managing the fund's liquidity.
Solution-oriented funds are available for investors with different risk profiles. They are available in equity (high risk), debt (low risk), and hybrid (moderate risk) segments.
Solution-oriented funds are best suited for investors having a long-term view and looking for a big corpus after a few years. The primary advantage of this fund is that they help you in financial planning. But for that, you have to deal with lower liquidity as these funds generally have a lock-in period.
These funds are best suited for investors who have sufficient money to meet current needs and are looking to build a corpus for some future event. These funds have a lock-in period of 5 years.
You won’t be able to redeem your funds because of the lock-in. This can act as a blessing in disguise as staying invested for a longer period increases your chances of getting higher returns. On top of that, it will instil discipline in your spending and help you fulfil a long-term goal.
Solution-oriented funds are generally available in the equity category. So, they are taxed according to equity mutual fund taxation rules. You can read about how equity mutual funds are taxed here.
Yes, solution-oriented funds are suitable for long-term investment as they have a lock-in period of five years. These funds also invest in assets that are suitable for achieving specific financial goals, which require a long-term investment horizon.
Yes, you can deduct up to Rs. 1,50,000 from your taxable income under Section 80C of the Income Tax Act, 1961 by investing in some solution-oriented funds. These funds are generally equity-focused solution-oriented funds.