Achieve Your Financial Goals with Mutual Funds
By Akhil Chugh
Date April 23, 2023
Invest money to have the right amount of funds at the time of “need.”
Here, the “need” is the financial goal.
From our childhood days, we have been taught that goal setting is fundamental to our long-term success. After all, it is difficult to get to the desired destination without clearly defining the destination. But once you realize what is important to you, the goals set by you will help you remain determined to achieve them.
Like all other aspects of life, this applies to our finances as well. And this is where the concept of investing based on your financial goals comes in.
Mutual Funds are a great investment option to reach your goals. There are mutual funds for all types of investors to achieve different financial goals. Mutual Funds are professionally managed investment vehicle providing diversification and risk-adjusted inflation-beating returns in the long run.
Mutual Funds for Goal Planning
Mutual funds are one of the ideal investment solutions for a wide variety of investment needs and risk appetites. You can use different kinds of mutual funds with different investment objectives to reach your goals. We will look at some common goals and the most suited mutual fund options to invest in for these goals.
1. Retirement Planning:
Retirement Planning is usually a long-term goal. Different types of diversified equity mutual funds like large-cap funds, multi-cap funds, large and midcap funds, midcap funds, small-cap funds etc are suitable. Depending on your risk appetite and investment experience, you can also invest in thematic or sector funds. SIP is the best investment mode over long investment tenures since you can benefit from the power of compounding and also take advantage of volatility through Rupee Cost Averaging which may give superior returns.
2. Children’s education and marriage:
These are long-term goals, but their time-frames are usually shorter than retirement planning. Further, parents do not want to take too many risks with their children’s goals. Large-cap funds, index funds, hybrid funds (e.g. aggressive equity-oriented hybrid funds, dynamic asset allocation funds etc.), and gold funds (for children’s marriage) etc. are suitable. As you get closer to achieving the child’s education goal, you can gradually secure the target corpus by parking it in low-risk asset classes.
3. Saving for vacation, vehicle or home purchase in 1 – 2 years:
SIPs in mutual funds are an excellent way to set aside money towards your car dream. Here, your choice of fund category should depend on how long you can put off buying the car. If your goal time frame is shorter i.e. less than 1 year, then liquid funds and ultra-short duration funds are more appropriate investment choices. If the car purchase is beyond three years, you could look for a dynamic asset allocation type hybrid fund to accumulate the required corpus.
4. Tax Savings:
You can invest in a mutual fund Equity Linked Savings Scheme (ELSS) to claim a deduction from your taxable income and save taxes under Section 80C of the Income Tax Act. You can claim a deduction of up to Rs 1.5 lakhs u/s 80C by investing in ELSS and save up to Rs 46,800 in taxes. Depending on your financial needs, you can invest for medium (3 to 5 years) or long (more than 5 years) term; the longer your investment tenure, the higher can be the potential returns.
Key Takeaways from Net Brokers:
- Invest wisely and start your investments early.
- Mutual fund investments should always be guided by the investor’s goal, risk appetite and investment horizon.
- Investing in Mutual funds via SIPs gives you a chance to chase your financial goals in a disciplined manner and fulfil them.
- Focus on your financial goals, prioritize them, and then select investment options that best match your requirements.
- Linking investments to goals prevents investors from digressing. If you get some extra money from somewhere but don’t have goals or targets, it’s very easy to digress unless you are disciplined. On the other hand, if goals are clear, you will want to use the surplus money to give an extra push to your goal-based savings to get closer to the goals.
Mutual fund categories provide a variety of goal-oriented baskets created by experts to assist investors in selecting the best-curated investment mix for their objectives. Download our Net Brokers mutual fund app and access our goal-based calculators like the child education calculator and the retirement calculator to get started with your goal-based investing.