How to plan retirement with solution-oriented schemes?

When entering the job market, people have one big dream. And that is, to create enough balance in their bank account. This money in their account will help them to spend the rest of their lives comfortably even when they take up retirement from their professional lives. But, nowadays, it is important to remember that the money that one earns through their full-time employment is not enough if they want a large sum of money in their bank account post-retirement. If they are serious about accumulating a large sum of money before retirement, they need to start investing now.
One of the places they can start investing in is the market which may help them grow their wealth. The market will have numerous investing tools such as mutual fund schemes. “What are mutual funds?”, you may ask. In simple terms, a mutual fund is an investment scheme that pools money from many investors. Once the money is pooled, the fund manager will go ahead and purchase securities. There are several types of mutual funds that are ideal for long-term wealth accumulation. One of the subcategories of mutual funds is solution-oriented schemes. Here are some of the things you need to know about them.

What are solution-oriented schemes?
Solution-oriented schemes or solution-oriented mutual funds, in simple words, are close-ended funds that are known for having a longer tenure investment horizon. They are ideal for investors looking for long-term wealth accumulation. The wealth accumulated through this scheme can be used for a myriad of purposes such as education or marriage or even for personal expenses after retiring. Solution-oriented schemes have made it simple for processes such as financial planning of complicated long-term goals that may or may not need a change of strategy in the future.

What are the types of solution-oriented plans?

Aggressive plan:
An aggressive plan is an open-ended retirement solution-oriented scheme that has two lock-in options. One is either 5 years or the other is until the age of retirement. The plan aims to provide investors with a long-term capital appreciation or income. The investor might aim to do so by investing in a mix of equity, debt and other instruments. Doing so might help investors meet their retirement goals.

Conservative Plan:
It is a solution-oriented scheme that comes with benefits like bringing stability to the investor’s portfolio by putting money primarily in fixed income instruments. Also, this plan offers the potential for growth through limited exposure to equity instruments.

Dynamic plan:
They invest in a combination of equity and debt instruments. That’s done after studying the market conditions using a systematic rule-based model. They use the model to dynamically adjust the equity allocation over time.

Apart from the three above, there is another type of solution-oriented scheme. Namely, the Children’s fund.

https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html

Children’s fund:
They are chosen by investors to enjoy capital appreciation. The income generated through such plans is useful to pay for things like marriage or education and other related purposes.

What is the nature of solution-oriented schemes?
Solution-oriented schemes by asset management companies (AMC) can opt to build an investment plan that resembles any of the plans listed below:

• Equity funds:
They are mutual fund scheme that invest in stocks of several companies. The fund manager does so based on the investment objective of the underlying scheme. An ideal investment option for those seeking capital appreciation for long-term wealth creation, they expose the investor to the market and its tools.

• Hybrid funds:
Also referred to as balanced allocation funds, these solution-oriented schemes come with an aim to achieve a balance between risk and return earned. The investor manages to achieve balance by opting for a scheme that invests both in debt and equity securities. These funds are suitable for investors who are looking for stable income through a plan that does not have many risks. Moreover, hybrid funds themselves can be classified into more than one subcategory. They can be classified based on the percentage of allocation. For example, if a fund manager invests at least 60-65% of the assets in equity schemes, it is known as equity hybrid funds. Similarly, if 60-65% of funds are invested in debt, it is referred to as debt hybrid funds. Any type of solution-oriented scheme can be chosen by investors after determining their risk aptitude.

• Debt funds:
They are known to attract investors for being a relatively stable investment option as they mostly consist of debt securities. It is a mutual fund scheme that invests in numerous fixed income instruments, such as government and corporate bonds, money market instruments and corporate debt securities. Putting money in the investment options mentioned above may offer capital appreciation. Amongst their major advantages are relatively high liquidity and a low-cost structure. They are ideal for investors who are seeking regular and stable income.

What are the benefits of solution-oriented schemes?
Listed below are some of the benefits of solution-oriented schemes that are known to attract visitors:

• They are a secure tool for financial planning:
One of the major benefits of solution-oriented schemes is that they are one of the most helpful tools to make a financial plan. For example, you are planning to invest in a plan to meet your future expenses after retirement. As a backup for retirement, you opt to invest regularly either through a lump sum deposit or a SIP.

• They offer opportunities for earning income:
Some solution-oriented schemes may have different components such as equities and debt. Based on the existing component of the scheme the investor may earn income from it. For example, if your scheme invests in an asset with a small exposure to equities, you may enjoy income accordingly. Similarly, if your scheme invests in debt securities, you may enjoy income from the investment at regular intervals.

• Solution-oriented schemes may be helpful in generating long-term wealth:
These schemes usually come with a lock-in period of five years. The lock-in period enables the fund to withstand the bear phase of the market. This may lead to long-term wealth accumulation. Moreover, in India, solution-oriented schemes can be availed in the form of debt mutual funds too. This aspect makes solution-oriented schemes one of the relatively stable investment options.

Who should invest in solution-oriented schemes?
Solution-oriented funds can be customised according to the future financial needs of an investor. They are long-term income funds, and, because of that, they help in building a corpus that will help you with long-term wealth accumulation, which can be used for a specific objective. However, before opting to invest in solution-oriented mutual funds, one should have sufficient capital. A partial withdrawal option is not available before the completion of 5 years in these schemes. Please remember that the investment duration in these funds should be higher in order to allow the fund to grow.
If you are opting to invest for a short-term goal, please consider debt-oriented funds. In case you are opting to invest in these schemes, please start investing as early as possible. This may generate income.

What are the things to remember about solution-oriented schemes?
Listed below are some of the things that you should remember about solution-oriented schemes if you considering investing in them:

• You need to commit for a longer period:
First of all, you need to have a long-term goal if you are considering investing in solution-oriented schemes. As the investing goal here is long-term, solution-oriented schemes usually include a five-year lock-in period. This entices investors to commit to investing for a longer period of time. Moreover, you can’t withdraw from the scheme if there is an urgent need.

• The type of portfolio might vary:
Please remember that there is more than one type of component the portfolio of a solution-oriented scheme might opt to invest in. It can opt to invest in things like debts, equities or hybrid.

• They are mostly close-ended schemes:
Before opting to invest in solution-oriented schemes please check whether the scheme you are investing in is a closed-ended or open-ended scheme. Most of the time, the schemes in this category are closed-ended. If you are searching for an open-ended scheme, please inquire for a fund house that will offer both.

• There are two popular types of solution-oriented schemes:
There are two types of solution-oriented schemes. They are retirement funds and children's funds. While the lock-in period for the scheme is five years, you can opt to continue investing in the scheme. Conversely, the income generated through children's gift mutual funds is useful to pay for things like a children’s education or marriage.

https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html

• Longer the investment period, the more the chance to grow:
As stated before, if you are thinking of investing in a solution-oriented scheme, you need to have a long-term goal so that your investments have the necessary time to grow. As the investing aim is long-term, most of the schemes in this category come with a lock-in period.

Listed above are the details about solution-oriented mutual funds. If you are a young professional who has just entered the job market and are currently looking for ways for long-term wealth accumulation for retirement purposes, it is of utmost importance to have an investment plan.
Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.