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Guide to Mutual Funds

Solution-Oriented Schemes

In the previous section, we looked at the different types of mutual funds in India which are Equity Mutual, Debt Mutual Fund and Hybrid Mutual Fund. Now, we will focus on the solution-oriented mutual fund scheme. As the name suggests, it provides a solution for investors to achieve specific long-term financial goals.


How Does a Solution-Oriented Scheme Work?

Solution-oriented mutual funds are mostly hybrid funds. They invest in both equity and debt. Investors can invest in these funds regularly through (Systematic Investment Plans) SIPs or in one go with lump sum investments. 


Generally, these funds are managed by tracking a benchmark index instead of actively choosing which stocks or bonds to invest in. Before investing, it's important to compare these funds based on what they invest in, how consistent their returns are, and the balance between risk and potential reward they offer.


Types of Solution-Oriented Schemes

  • Retirement Fund: An open-ended retirement solution-oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier). This is meant for long-term planning related to acquiring a corpus for retirement.

  • Children's Fund: An open-ended fund for investment for children having a lock-in for at least 5 years or till the child attains the age of majority (whichever is earlier). However, This is meant to invest in building a corpus for the child and their needs in the coming years.

Who is it Ideal For? 

Solution-oriented funds are suitable for those who have defined long-term financial goals and want a systematic investing approach to achieve them. 

However, you should check out the average predicted returns and associated risk factors before choosing to invest in a solution-oriented scheme. 


Taxation

The taxation of solution-oriented schemes depends on their nature and holding period:

  • Solution-oriented equity schemes: These schemes are taxed as equity funds, which means the long-term capital gains (LTCG) above gains of Rs.1 lakh are taxed at 10%, and the short-term capital gains (STCG) are taxed at 15%.

  • Debt solution-oriented schemes: These schemes are taxed as debt funds, which means the long-term capital gains (LTCG) are taxed at 20%, and the short-term capital gains (STCG) are taxed as per the investor's income tax slab







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