A strategy to reach your financial goals

Financial Planning

equity-linked savings scheme
tax saving fund

In this article you will learn about

  • Advantage of setting financial goals
  • Ways to set financial goals
  • Building a portfolio of funds for each financial goal

We all thrive to be in charge of our financial lives and many people manage it very smoothly. Setting financial goals is the first step towards building a smooth financial life. Financial goals could be European vacation, buying a house, upgrading the car or planning for retirement. These goals are a combination of two aspects – the money needed for the goal and the time frame to reach the goal. For example, it is better to write down that you need Rs 3 lakh for a family vacation in 2022, which clearly defines the outcome of the goal. 

Once you have set a financial goal, you can use online calculators to arrive at the monthly investment you will need to reach the goal. Based on the time frame; goals can be categorised as short-term, medium-term and long-term. Additionally, you could also slot your financial goals as essential, important and discretionary. For instance, it is essential to have one’s own house and emergency funds; and it is important to plan for your retirement and child’s education needs. Marking the importance to goals, can help you prioritise them better.

Depending on the years to your goal and your risk taking ability, you could select suitable funds to reach the goals. One of the most important financial goals is to set aside an emergency fund, which is about six months of essential household expenses, including liabilities like repayment of loans. Setting up an emergency fund could be a short-term goal which you wish to address over the next one year. You can choose from liquid funds or short-term funds to set aside money towards an emergency fund.

Medium term goals could include buying a car three years later or building the down payment for your house four years later. You may consider Fixed Maturity Plans (FMP) or a tax saving fund known as ELSS (equity-linked savings scheme ) . Likewise, goals that are significantly many years ahead such as child’s college education or your retirement which could 15-20 years later are all long-term goals.

For long-term goals like retirement and child’s education, you could choose from a combination of large-cap equity funds, large- and mid-cap funds and well diversified multi-cap funds. Depending on the suggested asset allocation, you could pick a set of funds to form a portfolio for each of your financial goals and taper the investments towards debt funds as you start approaching the goal.  

You can start investing regularly with a systematic investment plan (SIP) in a portfolio of funds towards each of your financial goal. You have the flexibility to start with small investments towards your goals and gradually increase them as you have the additional sums and feel confident with investing. When you invest simultaneously towards each financial goal, you can track the progress made towards each goal. You can also intervene to make any necessary changes to your investments to maintain the ideal asset allocation suitable to you.

Next steps

  1. List your financial goals in detail
  2. Calculate the monthly investment needed to reach the goal
  3. Invest in suitable funds towards your financial goals

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All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit pgimindiamf.com/IEID. This is an investor education and awareness initiative by PGIM India Mutual Fund. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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