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Why You Should Consider Mutual Funds for Goal Planning

5 MinsMarch 22, 2019

“Setting goals is the first step in turning the invisible into the visible.” – Tony Robbins (author, life coach, entrepreneur, and philanthropist).

We all envision certain financial goals in life–– buying a dream home, a car, going on a long foreign vacation, providing the best education to children, getting them married in style, and our own retirement, amongst others.

But it is also important to assess if the goals you have set are S.M.A.R.T. Meaning, your goals need to be…

  • Specific
  • Measurable
  • Adjustable
  • Realistic
  • Time-bound


Once you’ve set S.M.A.R.T. goals, you need to prioritise financial goals into short-term (less than 3 years), medium-term (3 to 5 years), and long-term (over 5 years).

Following the above approach will bring objectivity to your goal planning exercise. Thereafter, to accomplish the envisioned financial goals, you need to have a roadmap in place, or else your goals will remain just a fantasy. You ought to plan well.

“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein (a distinguished author on personal time management)

If you proactively and prudently engage in financial planning, realising your financial goals would not be difficult. But that’s not all; there’s more to it.

For your financial plan to be successful you not only need to save, but the subsequent action is also important, which is investing prudently in wealth-creating investment avenues. There is a plethora of investment instruments available, but amongst them, mutual funds are supposedly one of the best options.

The capital market regulator has categorised mutual funds into five broad categories:

  • Equity Schemes (The objective is to generate capital appreciation over the long term).
  • Debt Schemes (The objective is, steady and regular income to investors, but this varies as per the sub-category of the scheme).
  • Hybrid Schemes (The objective is to provide investors with the best of both worlds – capital appreciation of equity assets and the regular income of debt securities).
  • Solution Oriented Schemes (The objective is income generation and capital appreciation in line with the goal the fund is addressing). and
  • Other Schemes

Within each of the above categories, there are sub-categories.

As an investor when you choose mutual funds as an investment avenue, recognising the distinctive investment objective of the schemes and weighing if it is compatible with your financial goals is important for it to be an incisive approach.

If you are young, earn a respectable income, can afford to take risks, are seeking capital appreciation, and have sufficient time horizon (5 years or more) to accomplish the financial goals, equity mutual funds would be an appropriate option whereby you can potentially clock inflation-beating returns in the long run.

Conversely, if your financial goals are just a few years away, (less than 3 years); you want a steady and regular income, you can’t afford to take the risk, and/or you are a retiree, debt mutual funds could be better suited.

Similarly, there are solution-oriented schemes to address goals such as your child’s future needs (education and wedding expenses) and your retirement. As per the regulator’s categorisation, they are required to carry ‘Retirement Fund’ or ‘Children’s Fund’ in their complete scheme name.

Children’s Funds have a lock-in of 5 years or until the child attains the age of majority (18 years), whichever is earlier. Similarly, Retirement Funds have a lock-in of 5 years or your retirement age, whichever is earlier.

Given the lock-in period of five years, you need to carefully assess your liquidity needs—as to when you need money to fulfil the goal––before choosing a solution-oriented fund. Additionally, one also needs to evaluate which of the available solution oriented funds are worth investing into, by looking at the said scheme’s past performance track record, portfolio characteristics, fund manager traits and his past performance across other schemes, and so on before going ahead with investments. Want to select the best solution-oriented funds within 5 minutes? Click here.

Alternatively, you may also consider other diversified equity or debt mutual funds depending on the investment time horizon (this depends on how near or far away your stated goals are), your investment objective and risk-taking ability, amongst others. For instance, if you can afford to take some risk and the investment time horizon in hand is greater than 5 years, one can consider a multi-cap fund, mid-cap fund, and/or a value style fund. And for an investment time horizon of 3-5 years, a large-cap fund and/or hybrid equity fund would be suitable depending on your risk appetite. Want to select the best diversified equity funds? Click here.

On the other hand, if your investment time horizon is less than 3 years, then one could look at various categories within debt funds viz. short term funds, corporate bond funds and banking and PSU debt funds amongst others.

Systematic Investment Plan (SIP), a mode of investing in mutual funds, is an efficient medium to address your long-term financial goals. SIPs help you invest regularly and systematically in order to accomplish your financial goals. The two key benefits of investing via SIPs are rupee-cost averaging and it makes timing the market irrelevant while you endeavour to compound your hard-earned money.

To conclude…
Mutual funds are a potent way to generate wealth. A noteworthy fact is some mutual fund schemes have successfully clocked double-digit returns—generated wealth for investors and outperformed their respective benchmark indices over longer time frames.

Having said that, keep in mind the disclaimer: Past performance is not an indicator for future returns. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully.

Hence, while you pick mutual funds for your investment portfolio make sure you are making a prudent choice. Want help to pick the best mutual funds? Click here.

Happy Investing!

Disclaimer: This article has been authored by PersonalFN, Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.


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