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How to plan for a financial goal using mutual funds?

Ms Shukla wants to buy a bungalow in the hills in the future. Mr Chakraborty suffered a business loss and did not have any retirement savings as a result. Mrs Toppo wants to buy a new car but is falling short on funds. What all these folks have in common is the need for goal planning. And here is where mutual funds might help.

How to use a goal planner?

An online goal planner for mutual funds can be of great help here. For example, Nippon India composite goal planning calculator can help you plan for any future goal, be it a holiday abroad, wealth creation, buying a new home, and more.

First, you must get the specifics of your goal in place. This goal planner methodology called SMART can be used for financial planning:

1.  S – Specific: Your financial goals should be specific and have a detailed description. For example, Ms Shukla’s goal should be as specific as purchasing a bungalow worth Rs 80 lakh in Central Nainital within the next 15 years.
2.  M – Measurable: Think of your financial goals regarding ‘how much’ or ‘how many.
3.  A – Achievable: Your goal should be achievable and should align with your investment and the reality of how markets work.
4.  R – Realistic: Your financial goals should be realistic. The investments you make should be relevant to achieving that goal.
5.  T – Time-bound: Your goal planner method must include a start date and target date.

How to use mutual funds to achieve financial goals?

Investors can invest a lump sum amount in mutual funds or use a Systematic Investment Plan (SIP) facility, wherein a predefined amount is invested in the fund on a prefixed date periodically. Here are some ways to plan for goals using mutual funds:

Goal - Retirement planning

1.  Diversified equity mutual funds:
Diversified Equity Mutual Funds aim to achieve long-term capital appreciation through diversified investments. These funds invest across various sectors, thus reducing risk.
2.  Retirement mutual funds:
These aim to create a regular source of revenue for investors, post their retirement . The returns may be paid out as a monthly pay-out or in a lump sum amount. They may be debt or equity-oriented funds..
3.  Mid-cap funds:
For better returns, take a chance on mid-cap funds. They are relatively less risky than small-cap funds with better returns potential than large-cap funds. Investors shall ideally remain invested for long-term to reap the benefits.

Goal – Child’s education, wedding, etc.

1.  Children’s mutual fund:
These funds aim at funding future life events for the investors’ children, such as higher education, wedding, etc. These are solution oriented funds and may invest in equity and debt as per asset allocation defined in SID.
2.  Index funds:
The portfolio of these funds imitates a market index such as the Sensex or Nifty. These funds are not actively managed and have a lower expense ratio compared to actively managed funds.

Goal – Tax saving

1.  ELSS funds:
Equity-linked Savings Scheme (ELSS) funds are eligible for tax exemptions. They invest min 80% into equity and equity-related instruments and have a statutory lock-in of 3 years.

Goal – Regular income

1.   Systematic Withdrawal Plans (SWPs):
Here a fixed amount is redeemed from the fund and paid to the investor on a predetermined date periodically. SWPs are useful for anyone looking for regular income/cash flows.

Summing up

For the first step, investors must identify their financial goals. Then they can use a goal planner calculator to choose the appropriate mutual fund to help achieve their goals.

Disclaimer: The goal planning results are based on an assumed rate of return. Please get in touch with your professional advisor for a detailed suggestion. The calculations are not based on any judgments of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as promise on minimum returns and/or safeguard of capital. While utmost care has been exercised while preparing the calculator, NIMF does not warrant the completeness or guarantee that the achieved computations are flawless and/or accurate and disclaims all liabilities, losses and damages arising out of the use or in respect of anything done in reliance of the calculator. The examples do not purport to represent the performance of any security or investments. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax/ financial advisor before taking any investment decision.

ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

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