Unplanned investments
Manish is a 32-year-old individual, working in an MNC IT company. Manish’s family consists of a working wife, 2-year-old daughter and retired (dependent) parents. Manish and his wife are able to save Rs. 15,000 per month, which they invest in a mutual fund through the SIP route. While it is a good thing that the couple is investing every month, they have not aligned their investments to their goals. This is like they have set on a journey without any destination in mind and hence they don’t know which path to take and how long it will take them to reach the destination. The same happens with unplanned investments. This is where goal based investments can help people like Manish.
Goal based investing
Goal based investing helps in:
- Identifying #LifeGoals,
- Calculating the current cost of the goals, for example, current cost of an education course that you plan to enrol your child for when he/she grows up
- Calculating the future cost of the goals, for example, how much will the course cost 20 years down the line keeping in mind education inflation
- Assessment of investor’s risk appetite and accordingly selecting investment products and arriving at average rate of return on portfolio
- Calculating the regular investment amount, for example, how much amount needs to be invested every month to accumulate the required higher education fund
- Regular review of investments along with the financial advisor, for example, quarterly review of portfolio to see whether you are in the right direction to achieve the desired goal
Through goal based investments, a financial advisor can help Manish identify his #LifeGoals. Manish’s goals can include:
- Building a higher education fund for daughter’s higher education
- Building a fund for daughter’s marriage
- Building a retirement fund for self and wife
With goal based investing, Manish can earmark a systematic investment plan (SIP) in a mutual fund or a Unit Linked Insurance Plan (ULIP) for each of his goals.
Benefits of goal based investing
With goal based investing, an individual can follow a structured approach to his / her financial goals and stay focused on achieving each of his / her goals. With unplanned investments, it is easy to get distracted.
Manish was investing Rs. 15,000 every month. He had accumulated Rs. 2 lakh in one year. His family decided to take a vacation abroad. He used up the entire mutual fund amount for the vacation. Thus, his investments got disrupted and were reduced to zero. He has to start from the scratch again. With goal based investing, since your investments are focused towards a specific goal, you will not be tempted to make partial or complete withdrawals for distractions like taking a vacation or buying a four-wheeler
Bloggers meet on 8th January 2018
Bajaj Allianz Life Insurance organised a Bloggers Meet on 8th January 2018 in Mumbai. The theme was to discuss goal based investment approach to achieve #LifeGoals. The programme focused on how to identify goals and take a planned approach to realise them. Unit Linked Insurance Plans (ULIPs) are an excellent investment product to achieve goals. The Senior Management discussed how ULIPs had given good returns in the past.
- ULIPs allow an investor, the flexibility to invest as per his / her risk appetite i.e. equity, debt, balanced funds to choose from
- ULIPs are a low-cost product i.e. the fund management charges are capped at 1.35% and premium allocation charges are very low
- ULIPs allow you to switch your investment from one fund to another, thereby you are always in control of your investments
They also busted certain ULIP myths.
Conclusion
With goal based investing, you have a clear picture of your destination life goal, for example, you need to accumulate Rs. 25 lakhs for your child’s higher education. You have a clear journey path you need to take and the timeline, for example you know the amount to invest every month and the time horizon for it. Thus, goal based investing makes sure you are taking a planned approach and stay focused on achieving your goals. The meet conclusion was, with Goal Based Investing, you can #InvestBefikar and achieve your #LifeGoals.