scorecardresearchHow to achieve your ambitious financial goals across tenors with ease?

How to achieve your ambitious financial goals across tenors with ease?

Updated: 25 Sep 2022, 02:00 PM IST

Short term financial goals can be achieved by investing in target maturity funds, medium term goals via a balance portfolio, and long-term goals by investing primarily in equity. Read further to know more on this

Financial advisors say that if you want to invest and forget your investments for over 10 years, then passive investing style is better

Financial advisors say that if you want to invest and forget your investments for over 10 years, then passive investing style is better

If you have ever met a well-meaning financial advisor, or even read any financial literature, then chances are that you know that investments are meant to be made in tune with your financial goals. Among a slew of investment options that we have around us, the ones that are catching the investors’ fancy the most are passive funds.

There are no prizes for guessing that mutual fund investors tend to prioritise the passive route to building their portfolios. The doctrine of ‘buy right and sit tight’ usually strikes a chord with more investors than not.

Currently, there are more than 300 passive funds across a range of assets and themes, including large, mid or small-cap stocks.

“If you want to invest and forget your investments for 10+ years then passive investing style is better. And even within passive, index funds are seen better over ETFs,” said Amol Joshi, Founder of Plan Rupee Investment Services, in an interview to MintGenie recently.

However, it is vital to comprise a well-rounded portfolio that caters to financial goals across time frame i.e., short-term, medium term and long-term.

If you plan to park money for the long duration (more than five years), then you should not postpone it and start SIPs in index funds. Among other index funds, Nifty100 index funds are seen as a good option for SIPs for new investors.

Short term goals

As far as short-term goals are concerned such as buying a car or an iPhone, or going on an overseas vacation, then equity may not fit the bill because of inherent volatility of securities.

“If the time horizon is less than three years then one should not invest in equity at all regardless of which direction the market is headed. The investors should choose debt funds, or fixed deposits of commercial banks and corporates. One should prioritise safety & liquidity over return in the short term,” says Sridharan Sundaram, Founder and principal officer of Wealth Ladder Direct.

However, passive debt funds which invest in safe securities can still help you meet these goals.

Also, target maturity funds are a useful class of passive debt funds comprising a set of safe debt securities such as G-secs, PSU bonds, SDLs and AAA-rated corporate bonds.

These funds help you minimise risks from interest rate movements.

Since these funds own bonds which mature on a specific date in the future, investors will know the exact time period when they will get their investment back.

Medium term goals

Let us suppose you have some mid term goals which are somewhere around 7-10 years away then you can build a balanced portfolio which is a blend of equity and debt.

“For 5-7 years, investors should have an asset allocation in place. A young investor can have anywhere between 60-70 percent in equity and the remaining in debt,” adds Mr Sridharan.

A goal which is more than seven years from today, you can allocate anywhere between 60-70 percent to equity and the remaining to debt. For the equity portion, it is rational to choose broader index funds which are not only safe but tried and tested for not-so-long duration financial goals. Some of the index funds one can consider buying include Aditya Birla Sun Life Nifty 50 Index Fund, DSP Nifty 50 Index Fund and HDFC Index Fund Nifty 50 Plan.

As far as debt portion is concerned, you can choose target maturity funds but make sure to match the maturity date of the fund with your goal.

Long term goals

If you are looking for a long-term goal such as planning for retirement, then that too can be achieved through investment in passive funds. And it is important to note that if your retirement is more than 15 years from now, you can then invest in equity alone to allow your portfolio to generate a higher return.

“And when the time horizon is more than seven years, one can invest as much as 80 percent in equity, and it is recommended to allocate a higher proportion to small and mid-cap stocks,” adds Mr Sridharan.

Within equity also, one can choose somewhat risky assets to make the most of time you have ahead of you.

However, if your retirement is fewer than 10 years from now, you can then play safe and invest a part of your portfolio in debt.

60/40 rule of investing implies that 60 percent of portfolio be allocated to equity. 
First Published: 25 Sep 2022, 02:00 PM IST