When you go to a shopping mall and randomly pick things, you end up spending time, energy, and money more than what is intended or needed. You also end up being stuck with things that are of little or no use to you. But, if you know and plan what you want to buy, you not only save time and energy but also money.
Planning brings several benefits while investing too. And therefore, a goal-based investment is preferable to a random investment. Let’s find out what is a goal-based investment and how does it help.
Goal-based investment in simple terms
From upgrading your phone to renovating your house, from funding your child’s education to securing your retirement – you may have different goals. Goal-basedinvestment refers to the specific investments you make for achieving each goal. It is a systematic and disciplined approach to meeting your goals.
Goal-based investment offers several benefits. Here are some of them:
- You get answers to questions like ‘How much do you need for your goal?’, ‘When should you start investing?’, ‘Where should you invest?’, etc.
- You smartly avoid the debt trap in your journey toward your financial goals.
- It becomes easier for you to manage your investments and track your progress.
There are several types of investments in India. Let’s look at how mutual fund investments can help with goal-based investing.
Different mutual funds for different goals
- Goal: To save tax
Mutual fundsthat can help:Equity Linked Savings Scheme (ELSS)
ELSS is an equity mutual fund that can help you reduce your taxable income by up to Rs 1.5 lakh annually under Section 80C of the Income Tax Act, 1961. This means you can save up to Rs 46,800 in taxes each year.
- Goal: To be emergency ready
Mutual funds that can help: Overnight funds
Overnight fundsare debt funds that invest in securities having a maturity of one business day. Such funds are, thus, highly liquid and accessible. Instead of keeping your money at home, you can park your savings in overnight funds and build your emergency fund faster with the returnsthat you earn.
- Goal: To meet short-term goals such as buying a phone
Mutual funds that can help: Debt mutual funds
Short-term goals need a safe approach because of the lack of time. Thus, debt mutual funds are ideal for goals that are not too far. They are relatively safer mutual funds that can help you earn low to moderate returns. You can either go for active debt funds or passive debt funds. Some passive debt funds such as target maturity funds are often looked at as an alternative to fixed deposits.
- Goal: To meet medium-term goals such as buying a car
Mutual funds that can help: Hybrid mutual funds
Hybrid mutual funds invest in a mix of equity and debt. Thus, you can balance risk and returns while proceeding toward your goal. There are different types of hybrid funds that you can choose from. For example, balanced advantage funds have the liberty to invest 0 to 100% in equity or debt to capitalise on market opportunities.
- Goal: To meet long-term goals such ensure a secure retired life
Mutual funds that can help: Equity mutual funds
When your goal is far away, you have enough time to explore different investment options. You can evenopt for ones that may have high risks but also have the potential for high returns in the long run. As such, you can opt for equity mutual funds. Again, you can choose between active equity funds and passive equity funds. Passive equity funds track and imitate equity indices such as Nifty 50.
Mutual funds not only offer different types of schemes but also let you choose your mode of investment. You can either make a one-time investment or invest in small instalments through Systematic Investment Plans (SIPs).
To sum it up
Goal-based investments are a systematic way of fulfilling your dreams.The different types of mutual fundsand the investment flexibility they offer can make your task easier.
An investor education initiative by Edelweiss Mutual Fund
All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit – https://www.edelweissmf.com/kyc-norms
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