Money on mind? Shed your fears! Just do this and you are set for all that life throws at you

SEBI has created a category of goal-oriented fund, which is termed as Solution-Oriented Funds. These funds are of two types, including retirement and planning for children.

The lock-in period of Solution-Oriented Fund is 5 years, and you can not withdraw money before 5 years. Photo: Reuters

Money is the one thing that is tough to accumulate. It generates fear in mind. However, if you want to get into teh no-fear zone in your life, then you have to do this or else you will keep regretting. So, if you are worried about your children's education and retirement, the sooner you decide to start investing to meet these goals the more benefit you will get in future. And to serve the purpose of both these goals, there is a special category of mutual funds, which is known as Solution Oriented Fund.

What are Solutions Oriented Funds?

According to Mrin Agarwal of Finsafe India Pvt Ltd, market regulator SEBI has created a category of goal oriented fund, which is termed as Solution Oriented Funds. These funds are of two types, including retirement and planning for children. These are designed to invest for long term investments, which are made for the post-retirement expenses and also for the safe future of children. The Solution oriented funds are open-ended funds, and they also provide tax rebate.

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Lock-in period

The lock-in period of Solution Oriented Fund is 5 years, and you can not withdraw money before 5 years. However, money can be withdrawn in 5 years or on retirement, which ever will come first. The same formula works in the case of children's funds, you would be able to withdraw after 5 years or when the child is 18 years old, whichever comes first, will be the date of maturity.

What are Children's Funds

Children's funds fall into the hybrid category, and the purpose behind funds is to make the future of children safe. Children's funds come with a lock-in period and parents also get an Insurance cover for accident. The investment in Children's funds are made for a longterm period.

Need for Children's Fund

Through Children's fund, adequate funds are deposited for the future of children. Since Children's funds have a lock-in period, you cannot withdraw money before that time. Of this funds, 40-75% is invested in equities and the rest of the amount is invested in debt instruments. It also has an accident cover for parents as well as for Legal Guardian. The second child can also be made a nominee.

When can you withdraw

Money from Solution Oriented Fund gets deposited in the bank account in your child's name on the maturity of the fund which will occur when your child is 18 years old. The date of maturity can also be extended, and it can be extend till 21 years of your child. Notably, you should start investing from the birth of your child for his/her education, career and marriage expenses. You should start finance planning for the child, according to the target, and follow it strictly.

Funds for Retirement Planning

For retirement planning, three things are necessary - target, time and amount to meet the target. Keeping in mind these three things, you should invest in assets that give good returns. If you have 10 years or more to be retired, then these funds will not prove to be beneficial. Such people should invest in equity funds.

Most retirement plans are balanced funds, and they are invested in both equity and debt. These earn lower returns than pure equity funds. If there is 5 years or less in retirement then these funds are good, as debt funds maintain stability in the portfolio, and prove beneficial in short term investment. If you have less investment in PF or NPS, the debt funds will be benefit you more.

Lock-in period/Tax rebate

Retirement funds have lock-in period of 5 years or more, and due to this, investment remains for longer period. In such a situation, withdrawing pre-matured money can be harmful, as you have pay a 3-4% exit load charge on pre-maturity money.

Under Solution Oriented Funds, you get tax rebate in Section 80C, but this advantage for investment for 5 years of lock-in period. If the equity ratio in your portfolio is more than 65%, you have pay on the long-term capital gains.

How many types of funds

Retirement funds are 3 to 4 types. Of these, HDFC Retirement Savings Fund has three plans - Pure Equity, Hybrid Equity and Debt Equity Plan. Tata Retirement Savings is different from this fund. Principal retirement savings are also different, and both of these include Conservative, Moderate and Progressive plans. In each plan, different funds exist which can be chosen by investors according to their need. Notably, ICICI Prudential Retirement Fund come with 4 plans.

Features of Solution Oriented Funds

In most of such funds, there is a facility to change plans, and while doing the same, you need not pay the exit load charges. The key feature of this plan is that when you change the plan, the lock-in period does not start again. The old period will only apply, therefore, investors can change plans on their own, and opt for auto-switches also.

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