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Which equity mutual funds to choose for 5 to 7 year financial goals?

Most people invest without having a clear direction or without having a defined set of financial goals. This way of investing isn’t ideal as one doesn’t know what they want to achieve with the money they invested. No matter at what stage or age in life you start investing, financial planning is essential as it helps investors understand their goals. Understanding your aspirations is and financial goals will only help investors make an informed investment decision.

If you have already set goals and have understood your appetite for risk, you can target these goals by investing in market linked schemes like mutual funds. Mutual funds are investment schemes that pool financial resources from investors sharing a common investment objective and invest this capital raised to invest across a diversified portfolio of securities. Mutual funds have fund managers have the task of ensuring that they buy and sell the right type of securities to help the scheme achieve its investment objective.

Mutual funds offer a variety of investment product, thus catering to the needs to almost all type of investors. Depending on one’s goals, investment horizon and risk profile they can decide which mutual fund scheme to invest in. To achieve your financial goals with mutual funds, investors may have to adequately diversify their investment portfolio. This will also ensure that the overall investment risk is spread across asset classes.

How to target your financial goals with mutual funds?

Before investing your hard earned money in any type of schemes, investors must first prioritize their goals. Goal based investing in known to have a good success rates as investors are emotionally attached to their goals and are determined to achieve them. Financial goals can be largely categorized as short term, mid term, and long term. However, the definition of these goals will vary from investors to investors. For example, for some savers a short term financial goal can be one that needs to be achieved within 12 months, a mid term goal can be one that must be accomplished within 1 to 3 years whereas a long term goal can be something that they need to achieve within 3 to 5 years.

For some the definition of a short term goal is what they need to achieve in the next 1 to 3 years, a mid term goal is something they have to attain in 3 to 5 years and long term goal is one which needs an investment horizon of 5 to 7 years or longer.

Any goal that needs more than 5 years to accomplish can be targeted by investments made in equity mutual funds. If you are a working professional who comes under either of the tax slabs, you can get the dual benefit of earning capital appreciation and saving tax by investing ELSS. Equity Linked Savings Scheme is an open ended equity mutual fund scheme that comes with a statutory lock in period of three years. This means investors cannot redeem their ELSS fund units for a minimum period of 36 months from the date of investment.

To be systematic and organized with your long term investments and target your financial goals, investors can consider starting a monthly SIP. Systematic Investment Plan works in such a way that it gives investors an opportunity to invest small fixed amounts at regular intervals. The introduction of SIP calculator has made investments simpler. Investors can start as low as Rs. 500 per month with their SIP plan.

If you are unsure about which mutual fund scheme to invest in to target your financial goals, feel free to consult a financial advisor.

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