Investing in mutual funds with a financial goal is a sign of an intelligent investor. One should build a diversified portfolio by investing in different asset classes to meet short-term and long-term financial requirements. Most investors generally have similar goals, but proper mutual funds are essential to achieve these goals depending on age and risk appetite.
Why Mutual Funds are considered ideal for achieving Financial Goals:
Mutual funds offer you a variety of options, each of which has a different investment objective. AMFI-Registered Mutual Fund Distributor Vinay Bothra explains, “Mutual fund investing also allows you to establish financial discipline and meet your financial aspirations in a structured and timely manner. Mutual funds also provide asset allocation funds which help you reduce risk based on your age stage.”
The primary financial responsibilities include buying a house and a car, going on vacation, educating children, getting married, saving for retirement, etc. To fulfil these responsibilities well, you should choose a mutual fund scheme by setting a target.
Children’s education and marriage
You have enough time for this goal. To achieve this goal, you should focus on protection; that is, your investment must be in a place with more security. You can invest in gilt funds of 5 years or debt funds of 5-10 years.
In this, you will not get much return, but the investment will be safe. If you want to earn more returns, then you can choose an index fund. This is also called passive investing, which is a cheaper option than actively managed funds. One should invest in index funds for a minimum tenure of 7 years.
You can also choose a gold fund. Gold can be helpful in children’s marriage, so one should buy gold ETF units. One unit is equal to 1 gram of 24 carat gold. Buying paper gold is considered cheaper and safer than physical gold. You can also easily withdraw such investments when needed.
You can invest in Equity-Linked Savings Schemes (ELSS) to save tax as well as increasing wealth. You can claim a rebate of Rs 1.5 lakh annually. It has a lock-in period of 3 years. You can invest in it for the medium-term (3-5 years) or long term (more than five years), depending on the taxable income.
Buying a car or a house, going on vacation:
You get a home loan for the house, but you will need money for the down payment. Dynamic asset allocation funds are a better option for this. These are hybrid funds, which invest in equity and debt instruments. You can invest for short-term or short to medium term, depending on how much time you have for your car and home buying target.
This target should be started at any time of life; the sooner you start, the more benefit you will get. If you are under 40, then you should invest aggressively in equity funds. If it is above 40, then you should invest by making an equity-debt balance.
As you age, you should focus more on safety. You can choose asset allocation funds, which keep investing in more volatile assets like equities and increase your investment in stable options like bonds, deposits.