Goal-based investing is a simple concept where you are required to align your investments with your financial goals. Whether your goal is to buy a home, or car, finance your child’s studies, or marriage expenses or simply create a corpus for retirement days, goal-based investing provides a prudent roadmap to success. One of the financial instruments that you must consider for goal-based investing is mutual funds.
Why goal-based investing in mutual funds must be considered?
Investing without a goal in life is like sailing without any destination. Goal-based investing endows your financial journey with a purpose. It prevents you from falling prey to short-term whims or market fluctuations. Instead, it assists you to concentrate on the bigger picture of meeting your financial aspirations.
Mutual funds, known for their diversified portfolios, offer a manageable and accessible medium to invest your money in line with your life goals. They are managed by experts who allocate the money pooled by distinct retail investors throughout various asset classes like bonds, stock, etc. This approach minimises risks and aligns well with the long-term horizon of goal-based investing.
What are the measures you must follow for attaining your goals through mutual funds?
Prioritise your financial goals
The first step is clarity. List down your financial goals – short-term, which has an investment horizon of up to three years, mid-term of between three and five years and long-term which has a time frame of five years and above. Be specific and realistic. Whether it is a dream vacation, your child’s higher education, or retirement, put numbers to your goals.
Understand your risk tolerance level. While mutual funds diversify risk, distinct funds have differing levels of risk. Conservative investors might opt for debt funds, while those comfortable with moderate risk could explore balanced funds. Aggressive investors may consider equity funds.
Mutual fund scheme selection
Choose mutual fund schemes that align with your life goals and risk tolerance level. For short-term goals, debt mutual funds offer stability. For long-term goals, equity funds have the potential for growth. For mid-term goals, consider hybrid mutual funds as they blend equity and debt to balance risk and return.
Systematic investment plan (SIP)
SIP is your disciplined route. Instead of a lump sum, invest regularly – monthly or quarterly. This minimises the impact of market volatility and provides you with the power of compounding and rupee cost-averaging features.
Periodic portfolio assessment and rebalancing
Life changes, and so do your life goals and risk appetite. Periodically assess your investments. If your goals shift or markets change, rebalance your portfolio. Do not forget to consider taxation implications while making changes.
Goal-based investing in mutual funds provides financial security. It is not about chasing trends, but about chasing dreams. By adopting a clear path and investing steadily, you can create a brighter future. Note that goal-based investing in mutual funds is not a decision you take once, it is a long-term commitment that requires periodic analysis and reviews until you reach your desired corpus.
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