Top 7 Solution Based Mutual Fund Schemes – Should you invest?

Top 7 Solution Based Mutual Fund Schemes – Should you invest-minTop 7 Solution Based Mutual Fund Schemes – Should you invest?


Solution Based Mutual Funds invests based on specific goals. These funds are already existing now, however, they have been classified as equity funds or balanced funds. As per recent SEBI reclassification of mutual fund schemes, AMCs can now create solutions based mutual fund schemes in India as a separate category. Existing funds would be categorized under this new category. What are Solution Based Mutual Fund Schemes? Which are the Top 7 Solution Based Mutual Fund Schemes in India in 2018? Should you invest in these Top 7 Solutoin Based Mutual Fund Schemes?

Also Read: 15 Best SIP Mutual Funds to invest in 2018

What are Solution Based Mutual Funds?


Solution Based Funds are mutual funds which aim at attaining specific goals during the tenure of the investment. These goals include:

1) Children Education

2) Child Marriage

3) Buying Dream Home

4) Retirement Planning

Benefits of investing in Solution Based Mutual Fund Schemes


1) These funds aim for specific goals like a child’s education or retirement planning.

2) These funds aim for consistent returns rather than higher returns.

3) Solution based funds come with low expense ratio.

4) These mutual funds come with a 5 year lock-in period, which provides funding manager an opportunity to invest in medium to long term bets.

Limitations of Investing in Solution Based Mutual Fund Schemes


1) These funds would work on providing consistent returns and may provide moderate to lower returns only.

2) These funds are not suitable for moderate risk or high risk takers.

3) These funds have lock-in period of 5 years and some experts believe that liquidity is an issue.

How does solution based mutual funds compare with traditional investment options?


All along we had traditional investment options like pension plans or money back insurance plans or endowment plans for children’s education or retirement planning. Let us compare solution based funds and traditional investment options.

1) Expense Ratio: Traditional pension plans or money back plans come with high fund management fees / expenses. Solution based mutual funds comes with low expense ratio, which is generally less than 2%. Hence solution based funds score high in this regard.

2) Lock-in Period:  Traditional pension plans are matured only at the time of retirement. Moneyback plans provide periodic returns on specific intervals. Solution based funds have 5 year lock-in period and after that one can redeem their mutual fund investments.

3) Commission: In traditional insurance or pension plans, the upfront commission paid to agent is very high. However, in case of solution based funds, commissions are part of expense ratio which is very low.

4) Investment amount: In pension or money back plans, the yearly subscription is very high. In case of solution based funds, like any other mutual funds, you can invest as low as Rs 500 per month through SIP.

5) Annuity purchase: In case of pension plans, you need to buy an annuity at maturity. However, in case of solution based mutual funds, you can just sell all your fund units or you can withdraw part of the amount and keep a balance or you can use Sytematic Withdrawal Plan (SWP) in mutual funds to withdraw them systematically.

How does Solution Based Mutual Fund Schemes compared with Equity Mutual Funds?


Solution based funds focus on specific goals. It provides moderate returns. On the other hand, equity mutual funds do not have any limits. Based on the investment objective, they can invest in specific sectors or stocks of specific capitalization, etc., In the long run of 8-10 years, Equity mutual funds have performed well and gave 12% to 15% annualized returns. Solution based funds on the other hand provide moderate returns.

Also Read: Top 5 Midcap Mutual Fund Schemes to invest in India

Top 7 Solution Based Mutual Fund Schemes


#1 – Tata Retirement Savings Fund


The fund seeks to provide a financial planning tool for long term financial security for investors based on their retirement planning goals.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 94,000.

This fund gave 10% returns in the last 1 year, 13% annualised returns in the last 3 years and 21% annualized returns in the last 5 years.

#2 – ICICI Prudential Child Care Fund


The plan seeks to generate capital appreciation by creating a portfolio that is invested in equity and equity related securities (65-100%), and debt and money market instruments, securitised Debt & Cash (including money at call) 0-35%.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 83,000.

This fund gave 5% returns in the last 1 year, 10% annualised returns in the last 3 years and 18% annualized returns in the last 5 years.

#3 – UTI Childrens Career Fund – Investment Plan


The scheme seeks to generate long term capital appreciation by investing predominantly in equity and equity related securities of companies across the market capitalization spectrum.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 88,000.

This fund gave 11% returns in the last 1 year, 12% annualised returns in the last 3 years and 17% annualized returns in the last 5 years.

#4 – HDFC Children’s Gift Fund


The scheme seeks to generate capital appreciation / income from a portfolio of equity & equity related instruments and debt and money market instruments.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 85,000.

This fund gave 7% returns in the last 1 year, 11% annualised returns in the last 3 years and 17% annualized returns in the last 5 years.

#5 – SBI Magnum Children’s Benefit Fund


The scheme seeks to provide the investors an opportunity to earn a regular income, predominantly through investment in debt and money market instruments and capital appreciation through an actively managed equity portfolio.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 86,000.

This fund gave 7% returns in the last 1 year, 14% annualised returns in the last 3 years and 16% annualized returns in the last 5 years.

#6 – UTI Retirement Benefit Pension Fund


The scheme seeks to generate a corpus to provide for pension in the form of periodical income / cash flow to the unit holders to the extent of the redemption value of their holding after the age of 58 years by investing in a mix of securities comprising of debt & money market instruments and equity & equity related instruments.

If one would have invested Rs 1,000 per month for 5 years through SIP, the invested amount would have been Rs 60,000 and the investment would have now grown to Rs 76,000.

This fund gave 3% returns in the last 1 year, 9% annualised returns in the last 3 years and 11% annualized returns in the last 5 years.

#7 – Reliance Retirement Fund – Wealth Creation Scheme


The scheme seeks to provide capital appreciation and consistent income to the investors which will be in line with their retirement goals by investing in a mix of securities comprising of equity, equity related instruments and fixed income securities.

If one would have invested Rs 1,000 per month for 3 years through SIP, the invested amount would have been Rs 36,000 and the investment would have now grown to Rs 42,000.

This fund gave 5% returns in the last 1 year and 8% annualised returns in the last 3 years.

Also Read: Top 10 Diversified Multicap Mutual Funds to invest

Top 7 Solution Based Mutual Fund Schemes – Should you invest?


Though SEBI has asked AMCs to categorize such funds in this new category, these funds are for moderate to low risk investors. Some of the existing mutual fund schemes have given anywhere between 5% to 18% annualized returns. These funds would focus on specific goals. If you are a low risk to moderate risk taker and cannot take a decision in picking up right mutual funds, you can invest in such solution based mutual funds. Otherwise, you can invest in equity mutual funds which provide anywhere between 12% to 18% annualized returns based on the tenure of investment.  

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Suresh

Top 7 Solution Based Mutual Fund Schemes

9 comments

  • Girish Kumar

    Sir, I am Central Govt. employee (aged 44 years) and had previously invested with 3 Mutual funds in SIP mode. However, due to certain financial urgency, I have redeemed the entire funds, while all were performing well. Now, I would like to start again by a monthly SIP of Rs. 5000/- (2500×2). I am ready to take high risks for the funds. So, please suggest suitable funds for me.
    Regards
    Dinesh Kumar

    • Hi Dinesh, you can invest in largecap funds and diversified funds like Aditya Birla SL Frontline equity fund, ICICI Focussed blue chip fund, Reliance Largecap fund etc.,

  • Aakansha Jain

    Great Financial Advice

  • Subeer Mukherjee

    I am unable to find UTI Children and HDFC children in the list of mutual fund for these 2 portfolios. Are they with any other name in the portfolio?

  • Alice

    Great Article! Thanks for sharing it.

  • Rajagopal Shenoy

    Hi Suresh,
    Considering the returns of these funds which is somewhere in between 9 – 10% (not guaranteed), wouldn’t it be better to opt for secure NCDs like the one launched from ECL which would give guaranteed return of 9.65% for 5 years? Of course, the assumption here is one is making a lump sum investment and not via SIP. Out of the two, which one would be less riskier? Thank you.

    • Hi Rajagopal, NCDs are high risk. you may not sell them on stock exchanges if there are no buyers. Comparing to NCD, solution based mutual funds are less risky.

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