The majority of Indian investors lack a structured approach to savings and investments. The majority of people don't set savings goals; instead, their spending patterns determine how much they are able to save. Likewise, most people invest in an ad-hoc way. When they have saved enough money, they invest it in stocks, bonds, mutual Funds, FDs with banks, modest savings accounts with the Post Office, and other investments without having any particular objective in mind.
Whether or not we have structured financial plans with respect to different life stages, all of us have different individual or family-specific financial goals in life, such as purchasing a dream home, an international vacation, purchasing a dream car, children’s higher education, children’s marriage, retirement planning, etc. We need to have a specific amount of money in order to achieve any of these goals, whether they are short-term, mid-term, or long-term. To achieve each goal within the allotted time, you must estimate the amount of money needed, work backward to establish how much you need to save each month and decide where to invest.
Factors to consider while goal planning:
It is crucial to choose the right instruments for your financial needs and to take the right degree of risk for those needs.
Goal planning with mutual funds:
Mutual funds are one of the best investment options for a wide range of investment needs and risk appetites. You might use various mutual fund types with various investment objectives to achieve your financial goals, such as retirement planning, children’s education and marriage, purchasing your dream home or car, going on an international vacation, etc.
Retirement Planning: Usually, this is a long-term financial goal. One can choose to invest in mutual funds as per their risk appetite and investment experience. They may choose to invest either in equity mutual funds, thematic funds, or systematic investment funds (SIP), depending on their risk appetite. SIP is one of the best-suggested investment options for a long-term investment since it allows you to take advantage of compounding's power as well as volatility through Rupee Cost Averaging, which may result in higher returns.
Children’s education and marriage: These are also long-term goals, but they often have a shorter time horizon than retirement planning. Furthermore, parents don't want to over-risk their children’s future goals and aspirations. It is suitable to choose either large-cap funds, index funds, hybrid funds, or gold funds to plan their children’s future. Gold funds can be ideal for children’s marriage goals. One may want to switch to debt funds to de-risk your children’s education or marriage related goals upon reaching the goal timeline.
Saving for a 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 timeframe 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 give you tax benefits.
Tax Savings: You can invest in mutual funds in the 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 a medium (3–5 years) or long (more than 5 years) term; the longer your investment tenure, the higher the potential returns.
Regular cash flows or income: Mutual fund Systematic Withdrawal Plans (SWP) over long investment tenures are one of the most tax-efficient cash-flow solutions for investors. SWPs can be very beneficial for retired investors and senior citizens who need regular cash flows from their investments for long periods of time. Hybrid funds are good investment options for SWP as they tend to have lower downside risks compared to equity funds and, at the same time, have the potential to generate higher inflation-adjusted post-tax returns over the long term.
Conclusion
Now that we have discussed the importance of goal planning and how to use mutual funds for your various short-term, mid-term, and long-term financial goals, we all can understand how important mutual fund is while financial goal planning for various life stages. Managing various priorities is one of the biggest challenges we face, but a carefully planned and structured goal-oriented investment portfolio can ensure that you are successful in achieving all of your financial goals.
Blog Home | Visit Our Website | Term Life Insurance Plan
