HOW ARE LIFE GOALS DEFINED?
Every individual has some life goals. Assuming the person’s age is 35, such goals can be a foreign vacation one year down the line, funding children’s higher education, buying a house within the next decade or simply planning for retirement which is 25 years away. So, goals which are less than three years away can be termed short-term goals, while those that have a horizon of five years or more are considered long-term goals.
HOW SHOULD FINANCES BE MAPPED TO A GOAL?
The first step is identifying goals for which one needs to start investing. Once that is done, work towards finding the cost of the goal today. To that value, add a reasonable amount of inflation, which will give an idea of the cost in the year you wish to accomplish it. Once this is done, identify an asset class or a mix of asset classes needed to reach the goal. This process can be done individually or with the help of a financial advisor. Now, work backwards and calculate the amount you could save through a systematic investment plan (SIP), lumpsum or a combination of both to reach the goal.
HOW CAN MFS HELP MEET THESE GOALS?
Mutual funds have schemes across asset classes and across time frames in which one can invest to reach goals. For example, if you plan for a foreign holiday two years from now which will cost you ₹5 lakh, you could use a combination of debt funds and equity savings funds to reach that goal. Since it is a nearterm goal and the time is less than three years, investment advisors would suggest a very small equity allocation in an equity savings fund. Once you work out the math, you can decide whether to make a one-time investment or stagger your money. Similarly, for retirement which is 20 years away, you could use a combination of equity mutual fund schemes. For your child aged 5 who needs money for higher education upon turning 18, a monthly SIP of ₹10,000 for 12 years in an equity fund at a 12% return could accumulate ₹32.2 lakh.