Financial Goals with Mutual Funds
By Akhil Chugh
Date December 25, 2022
From owning a holiday home, or a BMW, to traveling the world – there are many things in life that we want to accomplish. It’s our dreams that make life big. However, dreams alone don’t help. You need to plan for it from today onwards to realize them in the future. 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.
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.
Let us look at the reasons why mutual funds are the best way to meet your financial goals.
Why Mutual Funds are Ideal to Achieve Financial Goals?
1. Diversification Benefits:
Mutual funds are a pool of investments that invest across assets such as equity, debt, and other classes of securities. This gives them the advantage of diversification. It is always better to not put all your eggs in one basket and mutual funds help investors diversify their portfolios to ensure lower volatility with long-term growth.
Investors can invest in mutual funds to create a diversified investment portfolio to meet their long-term, medium-term and short-term financial goals. However, it is necessary to ensure that there is sufficient diversification or spread of investments across the chosen mutual fund schemes. It is important to take into account the risks and avoid under or over-allocation in a particular asset class.
2. Professional Management:
Mutual funds are managed by experienced professionals to invest the money as per the fund’s investment objective. These fund managers, along with analysts, always research, analyze, and study the current and potential holdings to deliver maximum earnings to investors.
Mutual funds also offer asset allocation funds that progressively reduce the exposure to volatile assets and move towards debt as and when the market becomes expensive and vice versa. These funds are a good option if you want to leave the rebalancing of your asset allocation to the fund manager.
3. Variety of Schemes:
There is a plethora of mutual fund schemes available to match almost exactly what you are looking for from an investment. This could be related to both your risk tolerance and your investment horizon.
Consult a financial expert at Net Brokers to know about the amount of required investment and the right asset class to reach your desired goals!
4. Systematic Investment Plan (SIP) Route:
A Systematic Investment Plan (SIP) is a method for investors to invest specified amounts at specified intervals in mutual funds to accumulate the required corpus to achieve their goals. SIPs help inculcate a habit of saving and financial discipline in individuals. SIP also makes timing the market irrelevant for investors with rupee cost averaging benefit over the long run.
SIP is a hassle-free investment route available for investors to instill financial discipline and meet all financial aspirations in a structured and timely manner.
5. Transparency:
Mutual funds are also highly regulated by SEBI and thus offer the most reliable way to invest in equity to achieve inflation-beating returns in the long run. Sebi ensures that fund houses disclose all instruments a mutual fund has invested in, along with its Assets Under Management (AUM), and other details.
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.
Retirement Planning:
This is usually a long-term goal. Different types of diversified equity mutual funds like large-cap funds, multi-cap funds, large and mid-cap 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.
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. Once your goal timelines are nearer, you may want to switch to debt funds to de-risk your children’s education or marriage-related goals.
Saving for vacation, vehicle or home purchase in 1 – 2 years:
Debt funds like low-duration funds, short-duration funds etc are suitable for these goals. 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 your goal duration is slightly longer i.e. 3 years or so, then you can invest in long-duration debt funds, dynamic bond funds etc which may give higher returns and also get tax benefits.
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:
- 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.
For more information, get in touch with us today! Download our mutual fund app & start investing for your long-term financial goals.
Happy investing!