Solution Oriented Mutual Fund Scheme- Characteristics as per SEBI Directive

A Solution Oriented Mutual Fund scheme is an investment option that helps an investor to meet a specific goal. Presently, solution oriented schemes are permitted to cover retirement planning and child’s education planning.  

Securities and Exchange Board of India (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 along with the revisions announced by SEBI. 

Solution Oriented Scheme- What is it? 

Investments are normally linked to financial goals. Solution oriented scheme is a new category of equity mutual fund schemes that enables the investor to meet a specific goal. Prior to the category revision too, there were schemes to meet such requirements. Said schemes were treated as general equity or balanced schemes. Presently, AMCs are allowed to offer solution oriented schemes linked to retirement planning of the investor or to meet the educational requirement of children of the investor.  In future, more solution oriented schemes linked to goals like marriage of children or  own house or own vehicle may be permitted. 

Solution oriented  schemes are suited for those investors who lacks the skills required for selecting suitable equity linked or debt linked mutual fund schemes, but desire to create their retirement or children education corpuses  through mutual funds. To have a reasonable corpus to meet goals in life, it is necessary to stay invested for a reasonable period of time. Hence, solution oriented schemes are offered with lock-in periods.  For retirement funds, a lock-in period of 5 years or retirement whichever is earlier is stipulated. In the case of education, the lock-in required is 5 year or the child becoming a major, whichever is earlier.

Solution oriented retirement planning saves the investors from the hassles of buying annuities. Purchase of annuity is a requirement in the case of the National Pension Scheme (NPS) or pension plans from insurance companies. In Mutual fund, the investor can opt for a systematic withdrawal plan to have the regular cash flow needed to meet after retirement requirements. However, the solution oriented schemes carry a disadvantage. Due to lock in period, the investor will not be in a position to switch to other schemes even if the performance of the scheme is bad. 

Solution Oriented Fund Scheme – Norms for scheme categorization and their characteristics

The revised norms for scheme categories under solution oriented mutual fund scheme and the characteristics are as shown below: