Goal-based investment best road to financial freedom

Choose savings instruments based on time horizon, equity MFs best long-term bet

Every individual has dreams about the future, some of which require availability of sufficient financial resources. To fulfil those dreams, the individual should set goals, plan to reach those goals and then work to execute he plan. Each stage is impor ant till every goal is reached, when the dream is realized.

“Each individual should be able to distinguish between his able to distinguish between his or her dreams and goals.Dreams are fuzzy things while goals are dreams which are also quantifiable, which are smart objectives, realistic and time-bound,” said Tanwir Alam, founder & CEO, Fincart.”It is seen that if we set goals, here is a 70% more chance that hose dreams will be achieved.We all invest but you need an objective, a goal which is more motivational… just savings is not enough,” Alam said.

Financial advisers say that with a bit of a planning early , nvestors could achieve financial freedom by investing in mutual funds through the sys ematic investment plan (SIP) route. Fund industry officials say that SIPs could be used for nvesting for every investment duration, that is from a few months to several years, like 10, 20, 30 years.

SIPs & Investment Horizon

According to Mukund Seshadri of MSVentures Financial Planners, an SIP is “diversifica ion of your responsibility over a period of time.” And “each ype of SIP goes on to meet financial goals with varied time duration”, he said.

An investor can set up SIPs or various goals in life. The goals could be short-, mediumand long-term. You can invest via SIPs for short-term goals like buying a fridge, to go on a vacation to paying for kid’s vaccinations, said Seshadri. One could use liquid or liquid-plus funds for meeting short term financial goals. “But one should never use an SIP in an equity fund for meeting shortterm financial goals,” Seshadri warned.

It has been observed that on an average people change white goods like television, fridge, etc between three and five years. For meeting these expenses too, one can set up SIPs in short-term funds.

For meeting long-term financial goals like child’s education, marriage, retirement, etc, investors should use SIPs in equity funds.

Emergency Fund

One of the often neglected financial goals in one’s financial life is putting in place an emergency fund. One of the rules for such a fund is that you should be able to get the money very quickly . While putting some money in a bank FD is one solution, you could also invest in a liquid fund which can serve the same purpose.

Size of The Corpus? Most people also struggle with the question how much to save and what should be the final corpus. Here, some reverse engineering could help. First find out for what exactly you are saving for and then find out the current cost of that goal. For example, if you are planning to save for your child’s education, find out what is the course or stream that you want your child to pursue and at what age, and the current cost of it.

Financial advisers say that the rate of inflation in the education sector is 3-5 percentage points above the retail inflation rate. So if the current retail inflation is say 6%, you can safely take education cost inflation at 10%. Now with this rate calculate what could be the cost of your child’s academic course when heshe is actually ready to join the course. The figure you arrive at is the corpus you need for your child’s education. Now a good equity MF schemes can give you 1517% annualised return. So find out at this rate of return, how much money you need to invest in a monthly SIP to achieve your target corpus.

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Source: TOI


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