Good investment advisors are increasingly endeavouring that their investors do not make random investments in mutual funds and instead map these with their various financial goals. Most Indian investors do not have a structured approach to savings and investments. Most people do not have saving targets as the amount of money they save depends on their spending habits.
Every individual has financial goals that he needs to reach in the short, medium or long term period. Investing regularly to be able to reach the respective financial goal is called goal-based investing. For example, if you plan to buy a car in next 2-3 yeas, it can be called a short-term goal. Likewise, if you wish to plan for your retirement and children’s higher education, then these can be termed as long term goals.
First, you need to know your various financial goals which you wish to achieve over various time periods. Then you need to figure out the time you have in hand to reach those goals. Once you are clear about these two – goal and the time frame – work out the present cost of each of these goals. Now, apply inflation to the current cost and you know the future value of your goal.
For example – your current cost of a future goal, which is 10 years away from now, is Rs 20 Lakhs. Assuming the average annual inflation rate at 6%, the future goal value would be Rs approx 36 Lakhs. Therefore, you need to plan investments to reach the goal of Rs 36 Lakhs and not Rs 20 Lakhs.
Some of the common financial goals that you may need to plan could be Retirement, Children’s education and marriage, Savings for vacation, Vehicle or Home purchase in short to medium term, Tax Savings and Regular cash-flows / income planning.
Mutual funds are ideal investment solutions for a wide variety of financial goals basis the time horizon and your risk appetite. You can use different kinds of mutual funds with different investment objectives to reach your goals. We will look at some most suited mutual fund options to invest in for these goals.
To meet you various financial goals, you can invest in mutual funds either in lump sum or through systematic investment plans (SIP). SIP is an ideal investment option as you can invest regularly; say every month, for each of your financial goals. If you do SIP for each of the goals separately, you can track the progress of each goal and therefore know how much you have achieved against a particular goal at any point in time. SIP investments also help you increase the amounts in line with your changing financial situation like increase in salaries every year. If you increase your SIP amount annually, you can reach your financial goals faster.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.