AN EYE ON THE FUTURE

Putting a target date to your investment goals will help you pick the right instruments

Your needs will invariably vary at different points in your life, and will also likely be different from another person’s. So your parents may have retirement on their minds while you’re angling for a trip abroad next year, or you may be looking to buy an SUV while your friend is worrying about putting her daughter through college. Smart investing requires that you fix a timeline to your goals depending on how near or far in the future they lie.

Also, that you do not put all your eggs in one basket; rather you create separate baskets for each

Lovaii Navlakhi Managing Director & CEO, International Money Matters For long-term goals, the risk profile comes into play along with the desired returns targets to meet those goals”

goal through informed decision-making. This helps you build a well-rounded portfolio that can withstand any volatility in the market. Here are a few pointers on how to classify your goals and invest systematically in accordance with your risk profile.

Short-term goals: Goals are defined based on how far into the future they are. Short-term goals are those that are likely to come up within a year, like buying a car or taking a trip abroad. The biggest requirement for such goals is liquidity. Investment, therefore, has to be in safe assets as the tenure is too short for recovery in

Shyam Sunder Managing Director, PeakAlpha “A good investment plan should be able to handle emergencies. The main way to do that is to make sure that adequate insurance is in place

case of a fall in value. Fixed deposits or liquid funds are the best bets in such a scenario. FDs currently are offering around 6.25 per cent rate of return per annum on a five-year tenure while liquid funds have given a 6-7 per cent return in the past one year. Liquid funds primarily deposit in money market instruments such as certificates of deposits, treasury bills, commercial papers and term deposits.

Mid-term goals: These are targets that are likely to come up in 1-5 years, such as buying a house in three years, or saving for a child’s higher education in five. Safety is still of paramount importance while investing in such goals, but it pays to increase your exposure and take advantage of additional return from equity. Therefore, investments in direct stocks or equity MFs can get you higher returns. As the goal approaches, perhaps a switch can be made to safer instruments.

Long-term goals: These are typically more than five years into the future. Retirement (depending on how many years to the time), for example, is one such goal. Equity investments may be risky in the short term, but there is no better avenue to grow your wealth in the longer run. With their potential to create wealth, they increase the possibility of realising long-term goals.

Before defining your goals, however, it is important to create an emergency fund to meet unexpected cash outflows so that your investments for other goals do not get derailed. In the absence of such contingency funds, you may have no choice but to dip into funds intended to meet goals in the future.

Investing in equities may be risky in the short term, but there is no better longterm avenue