How an investor currently does goal based investing?
When an investor starts to look for the right mutual funds to invest to achieve their goals, they google around a bit to discover & understand the basics but find themselves overwhelmed by the sheer amount of seemingly complex and even contradictory advice on the internet and various mutual fund investment apps. Furthermore as a goal-based investing process they identify two or three goals and then consolidate all the investments to achieve those goals. And the mutual fund selection is majorly based on the historic returns & performance of the funds. Also they are unaware or ignorant towards the number of mutual fund schemes they should be investing to achieve their financial goals. They tend to make a rookie mistake of investing either in too many number of mutual fund schemes or too less. This ends up over-diversifying or under-diversifying their portfolio which may not be optimum to be on track to fulfil their investment objectives. So you may ask what is the correct approach towards goals based investing.How should an investor approach goal based investing?
The objective for goal based investing is to accumulate corpus value with due diligent investments so that you have the right amount of money and the right time to meet your goals in the short, medium or long term. But due to the above mentioned approach of investing a lot of investors fall short of their estimated levels of money required for a goal. Goal based investing strategy takes into consideration an investors age, risk appetite, time duration and their current financial strength. Based on this they an investor should decide on the value of their current investments they make. For example, you want to accumulate Rs. 20 lakhs for your child’s education in the next 10 years, with an investment of Rs. 10000 monthly your consistent expected rate of returns should be atleast 10% or above. How will you ensure that the funds you have invested today are going to give you a consistent return of 10% or above to achieve your defined corpus target. These are the steps which you need to follow regularly so that you stay on track to achieve your goals.-
- Identify the specific financial goal - define your goal and the future value you want to accumulate to fulfill that goal.
- Set a time horizon - decide a time period in which you want to achieve this financial goal. Based on the priority of your goal, set a time horizon like short term goal (1-3 years), Medium term (3-5 years) and long term goal (5 years+).
- Understand your risk appetite - every investor chooses a fund based on their risk taking ability. A conservative investor chooses less risky mutual funds whereas an aggressive investor goes for comparatively more riskier mutual fund investments.
- Select the right mutual fund - allocating your investments in specific mutual funds asset classes (equity, debt, hybrid ect) based on the risk profile and the time horizon to achieve it.
- Constant monitoring & rebalancing - Now that you have made your investments, you have to regularly monitor the performance of each of the funds so that you do not deviate from your set target amount and goal.
To sum up...
Here at RankMF we believe it does not make sense anymore to club various different goals and treat them identically by putting all investment together to achieve them collectively. Financial goals differ in terms of importance in your life, time horizon be it short term, medium term or long term and the level of risk the investor is comfortable with relative to each goal. Hence it becomes imperative to invest in a separate basket for each goal.
There is a saying which goes by don’t put all your eggs in one basket. This stands true for your investments too. So mitigate your risk intelligently by investing in RankMF Basket and get the benefit of seamless goal based investing.
You simply have to open a free investment account online with RankMF.com and choose a basket of your choice to start your goal based investing journey!
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