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

India Today - - SMART MONEY | INVESTMENT PORTFOLIO - By Teena Jain Kaushal

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

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