Many Individuals are accustomed to investing money in market-linked financial products like fixed deposits, public provident funds, mutual funds, equities and shares, and real estate. When they aren't tied to a specific goal, though, investment becomes more random because you don'have a set period in which to invest or expect results. This volatility can be mitigated with goal-based investing. We put forth a lot of effort to earn money and invest it for the future, only to wind up with a multitude of financial goods that serve little or no use.
What is Goal-Based Planning?
It's an investment strategy in which you invest intending to reach specified objectives, such as saving for a home, vacation, or retirement fund. Rather than chasing profits or beating the markets, the idea is to invest consistently according to your risk profile and time horizon for the goal.
Make a list of your objectives and calculate the amount of data you'll need for each one. This will give you an estimate of how long you'll need to invest and how much you'll need to invest. Goal-based financial planning is a strategy that involves identifying, quantifying, and developing an action plan to meet short- and long-term financial objectives.
Benefits of investing with Goal-Based Planning
Your investments will have a purpose if you use goal-based investing. You will know how much to invest and for how long if you have a clear picture of your objectives. This also implies you're less likely to be influenced by market fluctuations and make rash decisions.
When you have established goals, you can better manage asset allocation in your investment portfolio. One of the most significant variables to consider when selecting goods for your investments is your investment horizon such as short, medium, and long-term.
Monthly SIPs, portfolio rebalancing, and other forms of goal-based financial planning encourage disciplined investing. Goal-based financial planning includes tax planning. You may avoid a last-minute tax-saving frenzy by preparing your 80C deductions ahead of time. You avoid going on debt to achieve financial goals such as a vacation, a new vehicle, a downpayment on a property, and so on, by planning ahead of time.
What Are the Different Types of Financial Goals?
Your financial goals can be classified into the following categories based on the number of years before they are achieved:
- Goals having a time range of less than a year are referred to as ultra-short-term goals.
- Goals with a time range of 1-3 years are considered short-term goals.
- Goals having a time range of 3-7 years are referred to as medium-term goals.
- Long-term objectives: objectives with a time horizon of 7-10 years or more.
Retirement, children's education and marriage, vacation savings, vehicle or home purchase in the short to medium term, tax savings, and regular cash-flows, income planning are some of the main financial goals that you may need to plan for.
Investing for short-term goals
A short-term goal must be met within the next two to three years. Because you don't have much time to achieve your goal, you'll need an investment option that protects the protection of your money. Set aside a fixed amount to invest in the allocated category of fund based on predicted returns. Most investors make the biggest financial planning mistake of ignoring quantification or estimating the required sum of money for financial goals. You must quantify your objectives and account for inflation. Some of the best investments for short-term goals are Recurring deposits, Debt Mutual Funds, Bank fixed deposits, corporate deposits.
Investing for medium-term goals
Medium-term objectives are those that can be met in three to eight years. Medium-term goals provide you more options when it comes to investing.
You could do an 80:20 combination of debt and equities mutual funds or stick with stock index mutual funds if you're willing to take some risk. Because investing in equity funds can be dangerous, diversifying your portfolio with debt mutual funds can help to mitigate the risk.
With a medium-term time horizon, you can consider putting money into a mix of stock index funds and bonds to boost your returns. As they try to replicate the performance of a specific index, equity index funds might hold hundreds or even thousands of different equities.
Investing for long-term goals
Long-term goals are those that will be achieved in the next 8 to 10 years. Because you have some time to achieve your goal, you can afford to take risks here. Building a retirement fund, investing in your children's education, and starting a business are all examples of long-term ambitions. Fortunately, a longer time horizon allows you to ride out the market's ups and downs and take on greater risk.
NPS, Equity stocks, Equity mutual funds, PPF are some of the best investment options for long-term goals.
Today, mutual fund firms provide a variety of goal-oriented baskets created by experts to assist investors in selecting the best-curated investment mix for their objectives. Make sure to keep emergency funds aside. You can invest in mutual funds in lump amounts or through systematic investing strategies to accomplish your various financial goals (SIP). SIPs are a great investment option since they allow you to invest regularly, such as once a month, for each of your financial goals. When planning your objectives, one must also consider emergency fund, tax implication, risk and tenure of investment along with inflation.
|Investment Option||Risk Profile||Goals|
|Recurring Deposits, Fixed Deposits, savings scheme||Low risk||Short-term|
|Liquid Mutual Funds||Low risk||Short-term|
|Debt Mutual Funds||Low -Mid Risk||Short to Medium-term|
|Equity Index Funds||Medium risk||Medium to Long-term|
|Equity Mutual Funds||High risk||Long-term|