GOAL BASED INVESTING

GOAL BASED INVESTING

Goal based investment

We all have dreams and desires but we do not plan our investments according to our goals, most people just invest in an unplanned manner. Goal based investing adds direction to an investment.

A structured, imagined & well thought out process for investing, where you know the purpose behind each rupee that is being invested is known as goal based investing.

It comprises of two parts - planning & investing.

Goal planning notifies the amount that is required to fund the goal and the how much is needed to invest regularly or one-time to get to the desired amount. Investing that amount in the most suitable product helps to achieve the goal without any difficulty.

Firstly you have to determine and analyze your current financial situation and then set goals. This activity involves in understanding what you want to do with your money and how you want your financial future to look like. Goal based planning is set in three time frames; short-term, mid-term and long-term.

1. Short-term: Has a time frame of few months to one year. It covers immediate goals such as buying a car or going for foreign vacation in the near future.
2. Mid-term: Involves a time frame from one to five years. Midterm goals include buying a house or starting a business in 3-5 years down the line.
3. Long-term: Involves plans that are more than five years off. It includes goals such as retirement or child education.

Long- term goals can be achieved with a large part of the investment being placed in funds that invest in equities and high- rated corporate debt with a small portion in secure investments. In addition to growth funds, there are others like the National Pension system (NPS) that cater to the long- term financial goals of retail investors.

Goal based investing ensures that the product selected is appropriate for investment and would help you achieve your goals. Investing in equity to fund short term goals can be fatal if the market turns unfavorable. Knowing your goals, knowing the best suited product will deliver the best possible return and happy investing experience.

Financial planning should comprise of all sources of income minus debt and expenses to arrive at the estimated savings figure.

As income rises, so should the savings towards achieving the goals. Financial plans need to be revisited every once in a while to review the progress and carry out changes in the investment structure if required.