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Yogi Zone

Useful articles for your finance management by our team of experts

How to invest for various Goals in life?

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goalsWe invest in various financial instruments. The reasons for choosing them could be many. They might have given great returns in the past, they might suit your risk appetite or combination of many such factors. Have you tried segregating investments based on goals rather than returns? Here is an attempt to explain you one such strategy – Goal based investment. Let’s see how we can approach each goal for the purpose of investment.

Goal name – Retirement

What is the right time to start investing for retirement? Is it 40 or 50? Would you believe if I say that the right time to start off is when you get your first job? Yes, that’s right. There are two reasons for this – 1) Rising inflation and 2) Power of compounding

To counter the inflation, you need to either save more or start early. Sometimes, you may fall short even by saving more if you have started late. Power of compounding is more visible in long term goals such as retirement.

Strategy to be followed

The first thing to do is to calculate the amount you would need at the time of retirement so that it will generate enough income for rest of your life. Calculate this amount based on present expenses, rate of return that can be generated, inflation, etc. Retirement calculators would be very handy for this purpose. Products that can be used for this purpose are EPF, NPS, Mutual fund pension plans, large cap funds, mid/small cap funds and PPF.

Goal name – House

Everyone wants a dream house. We all look for best interest rates and offers from banks so that we can grab our dream house as soon as possible. Should we purchase now or postpone it? How much loan needs to be taken? Which type of interest rate is the best – Fixed or Floating? There would be similar questions in your mind. Let’s try to answer these now.

Strategy to be followed

Before purchasing any house, make sure that the amount you want to set aside for this purpose does not block any other goal. You will be putting out about 20% of the money from your pocket, considering that 80% is from a loan. An important thing to remember is that real estate is illiquid. You may not be able to liquidate your asset if there is an emergency. If you are applying for a loan, the EMI should not exceed 50% of your monthly income. If it exceeds, you may be in trouble. Remember that you have other goals as well.  Plan for a house well in advance, as you would need amount for the down payment. The loan also provides tax benefits. You can avail the maximum benefit if you are in higher tax bracket and if the house is rented. The products that can be used for this goal are debt funds, NSC, 5 year FD.

Goal name – Child education

Education is one of the most important areas of our lives. It is even more important when we are planning for our child’s education. Many of us search for child plans that can help reach this goal. Can they help us reach our destination? Let’s try to explore this goal.

Strategy to be followed

Do not think about this as child’s future. By think of it as education, you might be tempted towards child plans which mix insurance and investment. Many such plans have failed to deliver. Think of it as a goal for which you need amount in installments such as when child reaches 10th, his graduation, post graduation, etc. Then, calculate the future value of the amount he would need for such education based on the current value. You should be having higher exposure to equities in order to beat inflation in the long run. Do not forget to have sufficient cover for yourself by buying a term plan. Products that can be used for this goal are PPF, FD’s, Large cap funds and bonds.

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