Whatever we do in life, if we have a clear “WHY” in our minds, we are more likely to be successful in that area. Understanding the ‘purpose’ of doing it makes the work consistent and effective. This rule applies in investing as well. Mindful Investing is important i.e. according to your Financial Goals.
Every person has many financial goals to achieve. Some of them are unavoidable and few can be discretionary. Unavoidable Financial Goals are Retirement Planning, House / Car Purchase, Children’s Education, Marriage, Renovation of house, Travel, etc.
Before starting investing for your financial goals, you need to consider a few factors such as,
- Time-Frame of the goals
- Risk-Tolerance level of investor
- Priority or purpose of investment
Let’s see through this article how you can invest in various financial products based on the time period of your financial goals.
Start with listing down your financial goals for yourself and your family and consider the time frame of goals.
The financial goals can be divided into four categories: immediate, short-term, medium-term, and long-term.
You need to follow different strategies for different goals and invest as per the time frame of goals.
Immediate: (Up to 1 year)
Liquidity should be the priority over returns in this type of portfolio. You can part your money in a Bank account or Liquid Mutual Funds for this tenure.
Short Term: (Up to 3 years)
You need to design a portfolio in which liquidity and safety of capital should be the priority over returns in this portfolio.
Investment options such as Debt Mutual Funds (Liquid Mutual Funds, Short-Term Mutual Funds), Bank Fixed Deposits, and Bank Recurring Deposits are suitable.
Medium Term: (From 3-7 Years)
In this time frame, your priority should be moderate returns and capital appreciation. But remember taking too much risk can be dangerous in the medium term as you don’t have much time in case of a sudden downfall in the market.
Suitable investments can be Debt Mutual Funds (Medium-Term), Hybrid Mutual Funds, Bank Fixed Deposits, National Saving Certificate (NSC), and Other Post office investments.
Long Term: (Above 7 years)
As you have a longer time to invest, your priority should be higher returns over inflation and wealth creation. You can go with Shares (Direct Equity), and Equity Mutual Funds. Equity is the best choice for creating a long-term Portfolio. But investors can invest partial amounts in PPF/ NPS for portfolio stability and diversification.
| Category | Tenure | Priority | Suitable Options |
| Immediate | Less than or equal to 1 year | Liquidity and safety of capital | Liquid Mutual Funds & Bank account, Bank FD |
| Short Term | More than 1 year but less than 3 years | Liquidity and safety of capital | Debt Mutual Funds/ Post Office Schemes/Bonds & Debentures, Bank FD |
| Medium Term | More than 3 years but less than 7 years | Moderate returns and capital appreciation & Appreciation | Balance/ Hybrid /Equity Mutual Funds/ NSC/KVP |
| Long Term | More than 7 years | Higher returns & Wealth Creation | Shares, Equity Mutual Funds/NPS/ PPF/ PF/ Real Estate |
You will have to understand every financial product has its own pros and cons and capacity to generate returns. Though it is not guaranteed, however, it is as per the general historical data.
| Financial Products | Possible Returns p.a. (%) |
| Liquid Mutual Funds & Bank account, Bank FD | 5%-7% |
| Public Provident Fund – PPF (as on August 2023) | 7.10% |
| Kisan Vikas Patra – KVP (as on August 2023) | 7.50% |
| National Saving Certificate – NSC (as on August 2023) | 7.70% |
| Post Office FD (as on August 2023) | 6.90%-7.50% |
| Debt Mutual Funds/ Short-Term Mutual Funds/Bonds & Debentures | 7%-9% |
| Balance (Hybrid) Mutual Funds | 10%-12% |
| Shares, Equity Mutual Funds | Above 12% |
After understanding the characteristic of different financial products, let’s see what are all the benefits of investing as per your financial goals.
Benefits of Investing Based on Financial Goals:
Lower chance of withdrawal of money
If you plan your investment upfront and invest with a purpose, you are less likely to withdraw that money for some other reasons. At times, it happens that we invest our money randomly and we tend to withdraw it for not-so-important reasons. This habit stops us from growing wealth.
For example, if you invest money specifically for your home renovation, you are going to think 100 times before you withdraw if for travel purposes. By naming your investment and creating different investment baskets, you will find it easy to fund your goals.
You are less likely to avail debt on 11th hour
If you don’t plan, you will end up availing debt i.e. using credit cards, personal loans, etc. This is not a healthy sign in personal finance. Managing expenses mindfully, and saving a small amount on a monthly basis, can reduce the pressure of accumulating large money for a particular reason.
Sorted Finance and Mind
Financial Goal-wise investing will bring you peace of mind. Because you know that you have covered all the necessary goals. Further, even if you are unable to save for a goal, you will be aware of it in advance and plan it accordingly.
Control over Spending
Many times, we even don’t know how much we spend on what. We are unaware that whether our spending is necessary or just a luxury. When you list down your goals and arrive at an investment figure. You will have to automatically observe your spending pattern and curb your expenses. This will improve your journey toward wealth creation in the long term.
To sum up:
“Risk comes from not knowing what you are doing.” – Warren Buffett. So, be mindful. To become a smart investor, invest with a purpose and improve the probability of achieving it.
Happy Investing!
Very informative post. Exactly what to do and how should we invest is told.