What are short- and long-term goals?
Each investor would have some life goals to be met for which they would need to plan to accumulate money. Some short-term goals require a plan that would meet the financial need within a year or two. These include paying fees for education or buying a car. Long-term goals include retirement planning or buying a house, which may be 5-10 years into the future.
How do you plan for your goals?
The first step is identifying the various goals for which you wish to invest, and the current cost plus time you have to reach the goals. Consider how inflation will impact the journey, add its impact, and you will arrive at a sum that will tell you the cost of the goal in the year you wish to accomplish it. Decide the asset class that suits you or decide what mix of asset classes you want, work backwards, and calculate the amount you could save every month using SIPs or lumpsum or a combination of both to reach the goal.
How do you use mutual funds to reach these goals?
Understand your risk profile, and based on that, identify funds that can help you reach your goal. For example, if you plan for a foreign holiday 12 months from now costing Rs 5 lakh, you could invest in liquid or ultra-short-term debt funds to reach that goal and earn a return of 6-7%. Since it is a nearterm goal and the time is less than three years, typically investment advisors would suggest you only go for a mix of debt funds. Do your math, and decide whether you can make a lump sum investment or want to contribute every month through SIPs. Do also keep the tax implications in mind, as debt investments of less than three years are liable for short-term capital gains tax. Similarly, for your child’s higher education, which is more than 10 years away, you could invest in equity mutual funds. If your child is aged three years and needs money when he or she turns 18 for higher education, a SIP of Rs 10,000 every month for 15 years, at a 12% return can grow into a corpus of Rs 50.5 lakh.
How can you get a monthly income using mutual funds?
Investors can earn a monthly income using Systematic Withdrawal Plans (SWP). This allows you to withdraw a specific sum of money from a mutual fund scheme at regular intervals. For instance, if you want to withdraw Rs 10,000 a month on the fifth day of every month, it can be done using SWP. The interval can be monthly, quarterly, or half-yearly. Similarly, the amount you want to withdraw can vary depending on requirements. Through SWP, you can also choose to just withdraw the gains on your investment, keeping your invested capital intact, or pull out a fixed amount every month.
