Are You Investing Without An Investment Objective And Goal In Mind?
May 08, 2019

Author: Rounaq Neroy


My daughter is 18 years. I want to invest Rs 10,000 per month in Mutual Funds. Please suggest what I should do?

-  Vibhor Jain

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Investments should ideally be well aligned with your financial goal. This begins with clearly identifying the investment objective and defining the financial goal---child's higher education needs, wedding expenses, and so on---for which you want to invest. Plus, ascertain the time horizon in hand to fulfil each goal.

"The first step to achieving your goal is to take a moment to respect your goal. Know what it means to you to achieve it." - Dwayne Johnson

Setting a financial goal is very important because it provides a purpose, meaning, and it is a roadmap to accomplish the envisioned goals. It is a key to effective planning.

Mr Jain, you haven't clearly defined your investment objective and the financial goal you wish to accomplish.

Broadly, remember your financial goals be specific, measurable, achievable, realistic, and time-bound. In short, your financial goals should be S.M.A.R.T.

[Read:  How to Set S.M.A.R.T Financial Goals]

And ideally, you should be maintaining a financial goal worksheet. Click here to read how to go about maintaining a financial goal worksheet.

However, marking your goals and maintaining a worksheet is not enough.

"A goal without a plan is only a dream."- Brian Tracy

To get started you need to save and invest prudently in wealth-creating investment avenues to accomplish the envisioned financial goal/s, i.e. to build a sufficient corpus.

Mutual funds are definitely an apt choice to plan for short-term goals as well as the long-term ones. And a strategically well-thought-out selection, among a myriad of them available across category and sub-categories, is the key!

In the absence of clearly defined investment horizon, i.e. number of years-to-goal, commenting on which category and sub-category you should invest in would be imprudent.

But broadly, if your investment horizon is long (a minimum of 5 years) and you can afford to take the high risk (backed by your financial health and circumstances), equity-oriented mutual funds can be an appropriate choice for an investment objective of capital appreciation over the long term.

Assuming your investment time horizon is 7 years, a monthly SIP of Rs 10,000 will fetch you Rs 14.54 lakh assuming a compounded average growth rate of 12% in equities.

On the other hand, if your investment horizon is short (from a few weeks, months and/or up to 3 years) stay away from equities and choose bank fixed deposits and debt & money market instruments. The return you would clock will be lower than equities, but fitting and in accordance with the tenure.

Gold forms an important part of wedding rituals; so you can also consider investing a portion (5%-10%) of your total investible surplus in physical gold as well as gold ETFs/gold mutual funds, as a hedge and portfolio diversifier.

Keep in mind that investing and goal planning are individualistic exercises. So, never attempt to imitate what your friends and family do. Each one's risk profile, financial circumstances, investment objectives, financial goals, and investment horizon is different. So take note of the old proverb: 'One man's food is another man's poison'.

[Read: Step-By-Step Approach To Plan Your Child's Education Needs]

Editor's Note:

If you wish to select the worthy mutual fund schemes for your daughter's future financial needs, I recommend you to subscribe to PersonalFN's unbiased premium research service, FundSelect.

PersonalFN's mutual fund recommendations tend to beat the market by a significant margin over long time periods. FundSelect has beaten the market by over 70% in a decade.

Each fund recommended under  FundSelect goes through our stringent process, where they are tested on both quantitative as well as qualitative parameters.

With FundSelect, you get access to high quality and reliable funds picked by our research team using their comprehensive S.M.A.R.T. score fund selection matrix.

S - Systems and Processes

M - Market Cycle Performance

A - Asset Management Style

R - Risk-Reward Ratios

T - Performance Track Record

Every month, PersonalFN's FundSelect service will provide you with insightful and practical guidance on equity mutual funds and debt schemes - the ones to Buy, Hold, or Sell.

Our aim is to assist you in creating the ultimate portfolio that has the potential to top the market. If you are serious about investing in a rewarding mutual fund scheme, subscribe to PersonalFN's flagship mutual fund research service FundSelect today!

Happy Investing! 

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