What Is Goal Based Mutual Fund Investing?

Selecting to invest in a particular type of mutual fund scheme based on your investment goal is known as goal-based mutual fund investing.

Mutual fund schemes have something for every investor, whether you are conservative or aggressive, have a short-term, mid-term or long-term goal and have a small or large amount to invest. You can use different kinds of mutual funds with different investment objectives to reach your financial goals.

But are you choosing the right mutual fund schemes in accordance with your investment goals?

Let’s understand Goal-based mutual fund investing.

What is goal-based investing?

Everyone has one or other type of financial or investment goals that are unique to them and their financial needs. We may want to own a decent house, a luxury car, accumulate a fund for our child’s education or have a financially protected retirement plan.

Our goals may be of short-term, mid-term and long-term goals or even mix of all three.

These financial goals, in turn, determine the amount of savings we need to create and how we need to invest to attain the desired goal amount.

Also, goal-based investing helps you to invest in a systematic and disciplined manner to achieve your goals. It helps you to remain focused and unaffected by the short-term volatility of the equity markets.

Why mutual funds are ideal goal-based investing?

There are a variety of mutual fund schemes to choose from, each with a different investment objective. Also, we can leverage mutual fund investments to instill financial discipline and meet your financial aspirations in a structured and timely manner.

There is no doubt that investing in mutual funds is one of the best ways to meet your financial goals and hence, it becomes the first important step to invest in the right mutual fund scheme in achieving our financial goals.

How can you use mutual funds to meet the goal-based investment?

Identify mutual funds in accordance with your investment goals.

For example, let us look at some common investment goals and the most suited mutual fund schemes to invest in for these goals.

Also, you can decide on the investment modes for these mutual funds based on goals. Suppose for your child’s higher education which is more than 10 years away you could invest in equity-oriented mutual funds. If your child is aged 5 years and needs money when he turns 20 for higher education, if you do a SIP of Rs 10,000 every month for 15 years, at a 12% return you could accumulate Rs 40 lakh. It is easy to calculate SIP returns using SIP calculator available online.

This way you can use SIP mode or lump-sum mode based on your investment goal.

We all have dreams and desires, but most of us do not plan our investments according to our investment goals. The investments are made with a single-minded focus on maximizing returns. This often leads to investment mistakes, like trying to time the market.

The goal-based investment approach is the right way and very important when it comes to investing in mutual funds. Instead of randomly investing in many mutual funds based on the flavor of the month or year, investment gurus and experts suggest investing in mutual funds in accordance with your goals.

Happy Investment!