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The Importance of Goal Based Investing - ABSLMF Blog

Importance of Goal based Investing for Success

Aug 06, 2019
5 mins | Views 9868

Mutual funds have emerged as a preferred investment product for the retail investors, as they pool the money of investors and render professional fund management to the money invested. Mutual funds also offer you the facility of Systematic Investment Plans (SIPs) to invest in a systematic and disciplined manner to achieve financial goals. Regular and consistent investing also helps you in averaging the cost of investments over time; you invest across the market trends.

One of the essential tips for prudent financial planning is linking your financial goals with specific investments. With a wide range of investing options before the investors, mutual funds present a bouquet of different mutual fund schemes to achieve your financial goals in a time-bound and effortless manner.

The first step towards goal-based investment planning is to define a goal. Easier said than done, establishing a goal can be tricky, especially for the beginners. Your goal planner can include short term goals like buying a car, an overseas family vacation, etc. or long term like retirement planning, child’s education, child’s marriage, etc. Once you have set a goal, you must quantify it appropriately and aim to achieve in the given time frame. Like you must know your destination before starting your journey, setting your investment goals can help you steer through the complex maze of financial planning.

Here is how goal based investing can aim to benefit you in pursuit of long term wealth creation:

  • Inculcating Financial Discipline

    Making regular investments through Systematic Investment Plans (SIPs) turns out to be the one of the investing options, since the investor stays committed towards the financial goals. Goal-based planning helps you in staying motivated for saving consistently, as you have something to look forward to by investing fixed amounts regularly. Just like it is said, “small drops of water make an ocean,” regular and consistent savings take you a long way in achieving your goals.

  • Short term Market Corrections can be ignored

    Once you have undertaken goal-based financial planning and started making investments towards that cause, you are also less likely to be impacted with the short term volatility and hence, more likely to stay invested across the investment tenor. With a focused investment strategy, you may not get significantly affected during volatile times in the market, thereby ensuring that one does not succumb to fear. This is because the investments being made are required to be utilized only after a specified period, and any intermittent corrections might not affect the ultimate realization of your financial goals.

  • Asset Allocation

    Moving towards the desired goal within a specified time frame also requires you to stay disciplined with your asset allocation strategy, which defines the risk profile of the investment portfolio. Prudent asset allocation helps you to mitigate the investment risk to protect the principal and the returns so generated. For short term goals, one may invest in debt funds to generate reasonable returns and may mitigate the market volatility to a large extent. On the other hand, for long term goals, the investors may absorb a higher proportion of equity in the portfolio, as equities generally tend to perform well over the long term.

As such, goal-based investing holds the key to success for long term wealth creation for the investors. You must define your financial goals and start investing in such goals right away.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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