Solution oriented schemes
Also written Solution oriented mutual fund schemes
One of the five broad categories of mutual fund schemes: schemes that invest according to a personal goal such as retirement or a child's education.
In plain language
Most mutual fund categories are named after what they invest in: shares, bonds, or a mix.
Solution oriented schemes are named after what you are saving for. The booklet defines them as "mutual fund schemes which make their investments as per the goals of individuals like retirement and child planning, etc." Its other page puts the examples as "retirement & child education planning".
So instead of starting with "equity or debt?", you start with "what is this money for?"
That fits how the booklet teaches financial planning: pick a clear goal first, then choose investments to match it.
How it works
The five broad categories of mutual fund schemes (Chapter 5 and the securities-market booklet):
| Category | What it does | |
|---|---|---|
| A | Equity schemes | Principally invest in stocks |
| B | Debt schemes | Principally invest in fixed income securities like bonds and treasury bills |
| C | Hybrid schemes | Invest in two or more asset classes such as equity, fixed income and cash |
| D | Solution oriented schemes | Invest as per individual goals like retirement and child (education) planning |
| E | Other schemes | All other schemes, like index funds and sectoral funds |
Who the categories serve. Schemes are designed for different investors: risk averse (conservative, not wanting high risk), moderate (can take some risk) and aggressive (willing to take higher risk for higher returns).
Choosing a scheme (securities-market booklet). After KYC, the choice of scheme "is based on the risk appetite and financial goals."
Check the label. Under SEBI guidelines, schemes are labelled by risk on the risk-o-meter: low, low to moderate, moderate, moderately high, high and very high. A goal-based name does not tell you the risk level; the risk-o-meter does.
Tax differs by category. The booklet says different mutual fund categories get different tax treatment, so understand it before investing.
How to invest. A lump sum, or regularly through a SIP from as little as Rs 500.
A worked example
Names, amounts and return are illustrative.
Farida, 30, a pharmacist in Lucknow, has two goals:
| Goal | Time | Horizon (booklet's classification) |
|---|---|---|
| Daughter's higher education | 15 years | Long term (8 years or more) |
| Her own retirement | 30 years | Long term |
Step 1: goal first. Both goals match the examples the booklet gives for solution oriented schemes: child education and retirement.
Step 2: check the risk. She reads the risk-o-meter of each scheme she shortlists, and her own risk appetite, rather than relying on the scheme's goal-based name.
Step 3: invest regularly. She starts two SIPs:
Child education scheme: Rs 3,000 a month × 12 = Rs 36,000 a year
Retirement scheme: Rs 2,000 a month × 12 = Rs 24,000 a year
Total per year = Rs 60,000
Over 15 years, her child education SIP puts in:
36,000 × 15 = Rs 5,40,000
At an assumed 10% a year return, that could grow to roughly Rs 12.5 lakh. The return is illustrative; mutual fund returns are not guaranteed.
Why NISM asks about it
Chapter 5 (Investment in Securities Market) and the securities-market booklet both list the five broad categories of mutual fund schemes. Expect a matching question: "schemes that invest according to goals like retirement and child education belong to which category?" (solution oriented schemes), or "which is NOT one of the five categories?"
Common exam traps
- Solution oriented is category D of five: equity, debt, hybrid, solution oriented, other.
- The examples are retirement and child (education) planning.
- Index funds and sectoral funds are "other schemes", not solution oriented.
- A goal-based name does not tell you the risk. Check the risk-o-meter.
- Hybrid means two or more asset classes; solution oriented is defined by the investor's goal, not by the asset mix.
Check yourself
1.Which of the following is NOT one of the five broad categories of mutual fund schemes?
- a)Equity Schemes
- b)Debt Schemes
- c)Guaranteed Return Schemes
- d)Solution Oriented Schemes
Show the answer
Answer: (c) Guaranteed Return Schemes
The chapter states that "mutual funds are broadly categorized into FIVE schemes": Equity Schemes — "mutual funds which principally invest in stocks"; Debt Schemes — "mutual funds which principally invest in fixed income securities like bonds & treasury bills"; Hybrid Schemes — "mutual funds which invest in two or more asset classes"; Solution Oriented Schemes — "schemes which make their investments as per the goals of individuals like retirement & child education planning"; and Other Schemes. There is no guaranteed-return category, and there could not be: SEBI requires funds to be "labelled according to the level of risk involved" on a risk-o-meter running from Low to Very High, every level of which places the principal at risk. Candidates who miss a category usually drop Solution Oriented or Other.
Where this is taught
- Series II-B · Chapter 10: Mutual Fund Productsintroduced here
- Series SEBI-ICE · Chapter 5: Investment in Securities Marketintroduced here
Related terms
- Mutual fundA trust registered with SEBI that pools money from many investors and invests it in securities on their behalf — not a different product from shares and bonds, but a different way of owning them.
- Product labellingSEBI's 2013 requirement that every mutual fund scheme carry a label stating its objective, asset class, suitable holding period and risk-o-meter reading, to curb mis-selling.
- Systematic Investment PlanA facility to invest a constant amount into a scheme at regular intervals, which buys more units when the NAV is low and fewer when it is high and so averages the cost of acquisition down.
- Asset allocationThe decision on how to distribute a client's wealth across asset classes — the first decision in building a portfolio, and the one that explains most of what the portfolio then does.
- Financial planningThe process of estimating what a person will need money for across their lifetime and building an investment plan to meet each of those needs — savings with a purpose attached.