Goal-based investing
: Financial planners believe that one of the best and disciplined ways to allocate money in
mutual funds
is by linking it to a specific goal. This approach helps to avoid adding unnecessary schemes to the
investment portfolio
, making random selections based on current trends, and keeps investors focused on achieving their goals.
Goal-based investing refers to the practice of investing and building a corpus to meet specific life goals.
These goals can be short-term, such as a vacation. Children’s education fees or fees for higher education or retirement would be long-term goals. The key is to invest and save according to the time span available to reach these goals.
To achieve these goals, investors first need to identify their goals and determine the time it will take to achieve them. They should calculate the current cost of the goal and factor in inflation to estimate the future cost. Based on this, investors can decide which asset class or fund category to use to meet their goal. They can also seek guidance from a financial advisor if needed. Once the investment strategy is determined, investors can calculate the amount they need to save through systematic investment plans (SIPs) or lump sum investments to reach their goals.
Mutual funds offer a range of investment schemes across different asset classes and timeframes, making them suitable for achieving
financial goals
. For example, a combination of debt funds, arbitrage funds, and equity savings funds can be used to save for a near-term goal like a foreign holiday. On the other hand, a combination of equity mutual funds, including sectoral funds, can be considered for long-term goals like a child’s higher education.
It is important to consider the tax implications of investments and choose between lump sum investments or staggered investments through SIPs. However, mutual funds provide flexibility in terms of investment options and risk profiles, allowing investors to customize their portfolios based on their individual needs and preferences.