Decoding solution-oriented funds: Is investing in them the right choice?

Years ago, investments were made based on products and whether each product was suitable for an investor on an individual basis. Things evolved when goal based planning was introduced and investments had to be considered on a portfolio basis rather than individually.

We have seen a few AMCs launching solution oriented funds and while we are still at an early stage here, the journey from products to solutions is well and truly underway.

DP Singh, Deputy Managing Director of SBI Mutual Fund, highlighted the essence of solution-oriented funds in providing tailored solutions for various life goals. These funds, he mentioned, can be particularly beneficial for objectives like retirement planning and securing a child's future. Such personalised solutions can be effectively offered at the intermediary level by wealth managers or financial advisors, streamlining the investment process for investors.

One of the notable features of solution-oriented funds is their close-ended nature, typically coming with a mandatory lock-in period of around five years. This characteristic serves as a discipline-instilling mechanism, encouraging investors to commit to their long-term goals and resist impulsive decisions that might hinder their financial progress.

Early starters, who have more time to ride out market fluctuations, can opt for the aggressive plan to potentially achieve higher returns. On the other hand, those starting their investment journey later in life are advised to opt for the conservative plan, focusing on capital preservation and stable growth.

Talking about limitations of solution oriented funds, Kushal Bhagi, Owner of PCC Investing said when you look at the expense ratios of solution oriented funds, on average, it's between 2-2.50 percent and that's amongst the highest expense ratios in the industry.

However, no financial instrument is without its limitations. Kushal Bhagi, Owner of PCC Investing, points out an important concern regarding the expense ratios associated with solution-oriented funds. On average, these ratios range between 2 percent to 2.50 percent, which is relatively high compared to other investment options.

Bhagi suggests that investors could potentially achieve similar objectives with flexi-cap or hybrid funds that come with lower expense ratios.