Investing in Solution-Oriented Funds: Worth Considering or Not?
Retirement funds and children's funds are two distinct investment categories in India, each with its unique characteristics and purposes.
Retirement Funds
Retirement funds, such as the Tata Young Citizen Fund, follow a flexi-cap investing style. These funds aim to build a corpus for post-retirement life, balancing growth and capital preservation. They invest in a mix of equity and debt to suit a long-term horizon while managing risk.
Both retirement funds and children's funds have a mandatory lock-in period of at least 5 years. However, retirement funds may impose a lock-in until the investor reaches retirement age, ensuring the investment supports the retirement timeline.
Children's Funds
Children's funds, like Aditya Birla's Retirement Fund, are designed to meet future expenses related to a child's education, marriage, or other significant life events. They focus on long-term growth, generally through equity-heavy portfolios initially, potentially shifting to safer assets as the target date nears.
The lock-in period for children's funds extends until the child reaches the age of majority (18 years), whichever is earlier. Examples of children's funds include the HDFC Children's Gift Fund, which follows the aggressive hybrid investing style, and the UTI CCF - Savings Plan-Scholarship, which follows the balanced hybrid investing style.
Performance and Taxation
Both fund types are structured as long-term, with potential for significant capital appreciation if invested primarily in equity. Children's funds offer tax benefits under Section 80C of the Income Tax Act with deductions up to INR 1.5 lakh annually. Retirement funds also benefit from tax-efficient structures but focus on steady growth and capital preservation.
Mutual funds for children are held in the child’s name and operated by guardians until the minor attains majority, ensuring ownership and control transfer is clear.
Asset Distribution
Aditya Birla's Retirement Fund has four plans: The 30s Plan, The 40s Plan, The 50s Plan, and The 50s Plus Plan. The 30s Plan invests predominantly in equity (about 92%), while The 40s Plan invests majorly in equity but also has a sizeable debt allocation (about 76:24). The 50s Plan invests majorly in debt but also has a sizeable allocation to equity (about 56:44), and The 50s Plus Plan invests predominantly in debt (about 95%).
As of February 2023, children's funds managed over Rs 14,100 crore in assets, with the SBI Magnum Children's Benefit Fund-Investment Plan being one example of a children's fund that follows the aggressive hybrid investing style. The Aditya Birla SL Bal Bhavishya Yojna is another children's fund that follows the flexi-cap investing style.
As of the same date, there were 10 retirement funds in all, but the total number of plans stood at 25, with assets of over Rs 17,700 crore. It's important to note that both retirement funds and children's funds employ systematic investment approaches like SIPs suitable for their long horizons.
- Mutual funds like the Tata Young Citizen Fund, which is a retirement fund, adopt a flexi-cap investing style, focusing on balance between growth and capital preservation by investing in a mix of equity and debt.
- Children's funds such as Aditya Birla's Retirement Fund for Future Expenses initially concentrate on long-term growth through equity-heavy portfolios, potentially shifting to safer assets as the target date nears.
- In terms of asset distribution, some retirement funds like Aditya Birla's The 50s Plan invest majorly in debt but have a sizeable allocation to equity, while others, like Aditya Birla's SL Bal Bhavishya Yojna, a children's fund, follow the flexi-cap investing style.
