Investment: From children's education and marriage to retirement, this option is a smart choice for goal-based investing..

Today, investing is not just about making money, but about achieving specific goals. If you don't plan properly for needs like your children's education, marriage, or retirement, you might face difficulties later. Solution-Oriented Mutual Funds are designed with these goals in mind.

These funds are for investors who want to secure their major financial goals in life through long-term investment. Let's understand in simple terms what Solution-Oriented Mutual Funds are, how they work, and who benefits most from them.

What are Solution-Oriented Mutual Funds?

Solution-Oriented Mutual Funds are mutual funds designed with a specific life goal in mind. Their aim is not short-term profit, but to provide long-term financial solutions. According to SEBI regulations, these funds primarily fall into two categories.

Features of Solution-Oriented Funds
These funds have some unique features that set them apart from other mutual funds.

1. Long-Term Investment
Solution-Oriented Funds are locked in for at least 5 years or until retirement age. This prevents investors from withdrawing money due to market fluctuations.

2. Goal-Based Investment
Their focus is on a specific need, such as children's higher education or post-retirement income.

3. Balance of Equity and Debt
These funds invest in both equity and debt. These funds adjust their asset allocation (the ratio of equity and debt) according to your age and risk tolerance. When you are young, they invest more of your money in equity to give you better returns. As your goal approaches, they gradually shift money from equity to safer debt instruments to protect your accumulated fund.

What are Retirement Solution-Oriented Funds?
Retirement Funds are for those who want to secure their life financially after their job or business.

How do these funds work?
The investor invests until retirement age. Due to the long duration, you get the full benefit of compounding.
A good fund is built up by the time of retirement.
These funds are especially suitable for those who want another robust retirement plan in addition to EPF or PPF.

What are Children’s Solution-Oriented Funds?
Children’s Funds are designed for major expenses related to a child's future, such as education or marriage.

Key Features of these Funds
Investment can be made in the child's name or the parent's name.
There is a lock-in period until the child reaches a certain age or for 5 years.
You get the benefit of equity over the long term.
These funds can be a better option for parents who want to plan for their children's future from now on.

Why is this lock-in period beneficial?
This lock-in period is not a penalty, but actually a 'boon' for you. It saves you from two major mistakes:

Panicking during market fluctuations
Often, when the market falls, we panic and withdraw our money, incurring losses. Due to the lock-in, you cannot do this, which protects you from market volatility.

Lack of discipline
Sometimes we break our long-term investments for small needs. This lock-in prevents you from doing so and ensures that the money you saved for a big goal (retirement or children's education) is used for that purpose only.

Who can benefit from Solution-Oriented Mutual Funds?
These funds are not for every investor. But they can prove quite useful for some people.

Those who want to invest for the long term.
Those who need discipline regarding their financial goals.
Those who panic and withdraw money due to market fluctuations.
Those who want to create a separate fund for retirement or their children's future.
If you plan to withdraw money in the short term, these funds are not right for you.

Disadvantages
Low liquidity - difficult to withdraw money if needed in between. Returns are not guaranteed - they are market-linked.
Less flexibility - you may be stuck with the fund or unable to change your investment goals.
Things to consider before investing in Solution-Oriented Funds
It's important to keep a few important things in mind before investing.
Understand the lock-in period, as you won't be able to withdraw your money midway.
Be sure to assess your risk profile.
Investing through SIPs can reduce risk.
Always check the fund's past performance and expense ratio.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.