Smart way to use mutual funds to meet various financial goals
mutual funds based on past returns or themes, wealth managers suggest using mutual fund schemes effectively to meet your goals.
What is goal-based investing? Every investor has some life goals that need to be reached. These goals could be immediate in the short term or 1-2 years down the line or long-term like retirement or children’s education, which are, typically, more than five years away. Investing and building a corpus in the period that is available to reach these goals is called goal-based investing.
For example, if you want to plan a foreign holiday in 2025, which is 18 months away, it is a short-term goal. If you wish to plan for higher education for your child, who is three years old now, you have 15 years, and it is considered a long-term goal. If your age is 35 years and you plan to retire when you are 60, you have 25 years, which is again a long-term goal.
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Can mutual funds help in meeting these goals? Yes, mutual funds have schemes across asset classes and time frames in which one can invest and hence help investors reach their goals. For example, if you plan for a foreign holiday 18 months from now, which will cost you Rs 5 lakh, you could use a combination of debt funds and equity savings funds to reach that goal. Since it is a near-term goal and the time is less than three years, investment advisors typically suggest a very small allocation in an equity savings fund. You can do your math and decide whether you want to opt for a lump sum investment or want to stagger it. Do also factor in the tax implications.
Similarly, you could use a combination of equity mutual fund schemes for your child’s
