Solution Oriented Mutual Fund Scheme- Features and Characteristics

A Solution Oriented Mutual Fund scheme focuses on supporting an investor to meet a long term goal. As per the revised norms issued by Securities and Exchange Board of India (SEBI), AMCs are permitted to offer schemes for retirement planning and child’s education planning under  Solution Oriented Mutual Fund Scheme.

SEBI, the regulator of mutual funds in India vide its circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated  October 6, 2017, redefined the characteristics and  norms of all mutual fund schemes  to ensure uniformity in the features of similar schemes launched by different mutual fund houses. The revised norms are announced to ensure convenience to the investor to evaluate features and returns of different schemes to take informed investment decision. Solution oriented scheme is a newly introduced scheme as part of revamping. 

There are investors who lack skills for identification of proper schemes to meet their long term objectives. Solution oriented schemes target such class of investors. For any investment to generate return, investment should be locked –in for long periods. Solution oriented schemes carry lock in period of 5 years. For retirement funds, a lock-in period of 5 years or retirement whichever is earlier is applicable. For education, the lock-in required is 5 year or the child becoming a major, whichever is earlier.

The purpose of any investment is meeting financial goals. Solution oriented scheme supports an investor to meet a specific goal. Prior to the introduction of this specific class of investment, there were schemes with similar focus, but were treated as general equity or balanced schemes. Presently, AMCs can offer solution oriented schemes linked to retirement planning of the investor or to meet the educational requirement of children of the investor.  In future, schemes linked to goals like marriage of children or purchase of  house or  vehicle may be permitted. 

.The advantage of solution oriented retirement planning is that there is no need to buy annuities. Post retirement needs can be met through systematic withdrawals. In the case of the National Pension Scheme (NPS) or pension plans from insurance companies, investors are required to buy annuity on reaching retirement age. The disadvantage of the solution oriented schemes  is that because of  lock in period, the investor may not be in a position to switch to other schemes even if the performance of the scheme is bad. 

Norms issued by SEBI for solution oriented scheme categorization 

The norms and definitions provided by SEBI for classification of  solution oriented scheme are provided below: