Much like life, your investments should have a purpose and be driven by an aim. Simply put, you must adopt goal-based investing.
What is goal-based investing?
Goal-based investing refers to investing carefully for specific goals. From buying your dream house to taking a world tour, from starting your business to funding your wedding, you may have different dreams. Goal-based investing gives you a direction and a roadmap for achieving these dreams.
Why should you adopt goal-based investing?
- Having a separate investment for each goal helps you track your progress.
- If you have different investments for different goals, you can manage them well.
- Separate investments will also help you move towards every goal in a disciplined manner. Thanks to this, you will figure out the amount to invest for each goal.
- Different goals have different time frames and values. For example, you may need the money earlier for your child’s education and later for your retirement. With two different goal values and time frames, it is wise to have two separate investments so that you need not compromise on either of your goals.
How to go about goal-based investing through Systematic Investment Plans (SIPs)?
1. List down your goals. They must be SMART – Specific, measurable, achievable, relevant and time-bound.
2. Classify them into short-term goals that need to be met in 1 to 3 years, medium-term goals that are 3 to 5 years away, and long-term goals that are more than 5 years away.
3. Quantify each goal’s future value and while you are at it, don’t forget to add inflation. Once you know your target amount, set a tenure by ascertaining how much time you have to meet the goal. Once all this is done, proceed to invest.
4. Mutual Funds can help you with goal-based investing, thanks to SIPs. You can start a SIP for each financial goal. For example, say, you want Rs 1.2 Cr* for your retirement after 25 years. Assuming an interest rate of 10%, you will be able to accumulate this amount with a monthly SIP of Rs 10000.
You can choose to invest in the same scheme or different ones as per your goals, tenure and risk appetite.
*Above is for illustrative purposes only and is not an indication or guarantee of returns.
5. To meet your goal faster, increase your SIP amount with an increase in your income. Adding to the amount can also help you meet bigger or multiple goals.
6. Remember to spread your SIP dates. This will ensure that you do not have to invest all your money at once and you have enough liquidity at all times.
To sum it up
You have the right to dream. And moving towards your dreams become easier with goal-based investing.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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