5 Reasons Why Goal Based Investment in Mutual Fund Might Be The Best Strategy For You

What is the deep desire that motivates one to invest money? A generalised answer might be 'building wealth'. But what do you want to build this for? For some, the reason might be a new car or a new home, or it might be the precautionary sentiment of saving for retirement.A goal-based investment strategy focuses on meeting these individual goals rather than the aimless or more general chase of maximising your investment returns.A goal-based investment considers the personal goal, the period available to meet that goal, and then focuses on building the required amount of money. The investment planning is done keeping in mind factors like risk tolerance, inflation, income, age of the investor, and current and upcoming expenses.Still wondering how a goal-based investment may be best for you? Here's why:

When it comes to investment, there is often no upper ceiling specified for wealth creation. In the race for more returns and profits, one may end up losing their investment itself. Goal-based investment not only gives you a quantifiable number that you aim to achieve, but it also gives your investment a reason that is greater than merely ‘accumulating wealth’.

A vital part of the goal-based investment is weaving an investment strategy based on the type of goal and your risk appetite. A goal-based investment eliminates the fear of fluctuating markets and takes off the constant stress of investment decisions.For example, let’s say you wish to accumulate money for your daughter's marriage in 10 years. Since you can not venture into riskier investment products here, your portfolio might look like 30% equity and 70% debt. Hence, goal-based investment promotes diversification and ensures that the money is accumulated in a risk-controlled environment

Through goal-based investing, you can track how your portfolio is performing. The feeling of steadily reaching your goal is surreal, and goal-based investments offer you a chance to experience this joy. Also, the progress of your one goal investment can help you in improvising your future investment plans.

Often, investors are tempted to buy securities that might be momentarily experiencing a price surge. When the price falls, such investors tend to face significant losses. Goal-based investment excellently curbs the human tendencies of greed and dissuades you from taking such momentary decisions. It keeps your finances aligned to the fulfilment of your short-term or long-term goals.

Debts can be the biggest roadblock to reaching your financial goals. When you invest for financial goals such as your children's education beforehand, you are saved from loans in the future. This can be true for any goal, right from buying a car to a house. Goal-based investing saves you from falling into a debt cycle. Instead, you can consciously include debt in your goal planning instead of using it as a last resort.For example, while buying a house, you can plan your investments in such a way that you can amass 50% payment of your house, and the rest 50% can come from a bank loan. The periodic amount you paid to accumulate 50% share can be simply shifted to periodic debt instalments that keep you away from financial stress.

The Key to Success of Goal-based Investment StrategyA crucial aspect of goal-based investing is the goal itself. It is important to set well-defined goals that highlight the period you have and the corpus you might need to meet it. Once done, then you can plan the resources that you can commit to this goal periodically. Also, it is advised to review your goal periodically to ensure that your needs are aligned with your investment strategy and your risk appetite.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.