Rohan Mathawan
Over the years, you may have several financial goals such as funding your child’s higher education or planning for your retirement. Additionally, you may want to buy a home while reducing your tax liability. You may also want to buy a bigger car. These are various financial goals during the short, medium, and long-term.
One way to achieve your various financial objectives is through investments. However, this may again be confusing because there are several investment options that are available. You may choose among different products such as debt, equity, real estate, gold, exchange-traded funds (ETFs), fixed deposits, pension schemes, and several more.
You may avoid a lot of confusion by choosing to invest in mutual funds. Fund houses provide several plans to choose from. The first step to achieve your financial goals is to choose the accurate type of fund. Your choice must depend on factors such as your risk appetite, investment horizon, and liquidity of the chosen plan. The next step is to compare the performance of various funds to choose those that will most likely be beneficial to help you achieve your goals.
Types of funds to choose for different financial goals
You may have different goals over the years and not every fund is appropriate to meet these. Here are the recommendations on the most appropriate funds that are beneficial to achieve your goals.
1. Retirement planning
- Diversified equity funds
It is important you start planning your retirement at the start of your career. When you are younger, you may invest in aggressive equity funds to build a corpus over the long-term. Although equity funds are risky, these deliver the highest returns among different asset classes in the longer period.
- Sector/thematic funds
These types of funds invest the money in a specific sector or theme and are riskier. These invest in sectors such as banking, pharma, auto, and others. You may also choose amongst blue chip mutual funds, small-cap, and mid-cap funds.
2. Child’s higher education and wedding
- Balanced funds
Education costs are constantly rising and to ensure your child receives the best, it is important to start planning at the earliest. Balanced funds are excellent because a portion of the corpus is invested in equities that allow it to earn returns. The balance is invested in debt instruments that deliver stable returns. This investment strategy works to save money for your child’s marriage too.
- Index funds
These funds invest the corpus in stocks included in the benchmark index in the same proportions. Therefore, if you are a passive investor and satisfied with earning index returns, then opt for these funds.
3. Tax planning
- Equity-linked savings schemes (ELSS)
The money you invest in ELSS funds is eligible for tax deductions. Additionally, the dividends and capital gains at the time of maturity are also tax-free. However, long-term capital gains exceeding INR 1 lakh is taxed at 10%. ELSS is diversified equity funds with a three-year lock-in period and provides tax benefits under section 80C.
4. Regular income
- Monthly income plans (MIPs)
When you retire, having a regular monthly income is important because you no longer have a job. MIPs are beneficial to meet this goal because funds distribute the surplus income as dividends. The returns are stable because a majority of the fund corpus is invested in debt instruments.
For medium-term goals like buying a car, it is recommended you opt for debt funds. The money is invested in debt products that are not affected by stock market movements. If you want to invest a large amount for a short period, consider investing in liquid funds.
You may choose from several types of funds to meet your financial goals. Start investing today.