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Go Back to Main Page Goal Based Financial Planning Helps You Make The Right Investments

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Goal Based Approach

Homemakers are known to run households without much fuss, and even generate a surplus every month. They do it by simply creating separate cost heads and earmarking funds for each of them. Similarly, one can meet one’s financial goals by creating separate portfolios for them instead of trying to achieve all of them at one go.


The main reason for this is that different goals have to be achieved within different time-frames. For example, someone in his late 20s could be planning to buy a house in 3-5 years while kids’ education may be 15-20 years away. Similarly, retirement could be a good 30 years into the horizon. When the timeframes for two goals aren’t the same, the assets that one requires to invest in to achieve those goals differ too. Creating separate portfolios helps in clearly identifying the expense head. Most importantly, over- or under-deployment of funds towards a particular goal is taken care of.


Although equity outperforms all other asset classes over the long term, given its volatile nature, medium term goals are best met with debt instruments as they carry little risk of capital erosion. These include bank fixed deposits (FDs), post office savings products and bonds, among others. However, as each asset has its specific risk-return matrix, a mix of them works best in achieving most goals. Further, while choosing products within an asset class, consider features such as liquidity, basis and taxability of returns, and lock-ins.


For the rainy day. Before you embark on your financial journey, create an emergency fund that can help you meet 4-6 months’ expenses, should something unforeseen happen. Ideally, look at bank FDs or liquid MFs to park funds. Buying a house. Don’t invest directly in equities as returns from them can be volatile over the short term. However, a bit of exposure to equities through balanced funds may just provide a kicker to returns. Choose at least two such funds and start investing in them through systematic investment plans (SIPs) under the growth option. You can use SIP Calculator online to calculate your returns on your monthly investments. An alternate way to go (if the goal is at least five years away) is to invest in equity-linked savings schemes (ELSS). Besides 100 per cent exposure to equities, these schemes have a lock-in of three years, which means staying put for a while is sensible. For periods significantly shorter than five years, say, three years, you can look at investing in debt MFs.

Choosing The Right Asset Class

Kids’ education. Have separate education portfolios (for higher education, too) for every child. An investor education and awareness initiative by Franklin Templeton Mutual Fund This article was part of ‘Head Start’ series which was published in Outlook Money Magazine. Mutual fund investments are subject to market risks, read all scheme related documents carefully. Ideally, before the kid is a year old, you can consider investing in diversified equity MFs (mostly large-cap), gold exchange traded funds (ETFs) and large-cap stocks, among others. Get a PPF account opened in the minor’s name. When the kid is four years of age, diversify the portfolio further. Invest in a mix of large-, mid- and small-cap stocks that have performed consistently. When the kid is five or six, buy gold ETFs (up to 5 per cent of the portfolio) and buy some large-cap stocks. Continue with these investments without dipping into the corpus. If the age difference between two kids isn’t much, there shouldn’t be any difference in the strategies for them.

Retirement. Lay the foundation with SIPs in 2-3 good diversified equity MFs. Over time, buy index funds and ETFs and, as your income increases, some large-cap focused funds. When you are a few years away from retirement, add some mid-caps funds for a kicker to returns. However, for those nearing retirement or starting very late, it makes sense to go a little less aggressive on equities. And, all along, do periodic reviews to take corrective action.

Derisking. While equity helps in creating a corpus, debt helps in preserving it. Ideally, when three years away from reaching your goal, start the derisking process. Start shifting funds from equity to debt. For instance, from equity funds, move money into debt funds through systematic transfer plans (STPs).


Throughout your financial journey, it’s important to cover the risks. For example, a premature death can derail most financial goals of an individual. Get a pure term insurance plan so that even in case of a setback all future goals are achieved.

Next To Come: Don’t Lose Sight