Why one should have goal-based SIP?

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Before everything became digital, my parents used to set aside every month, money for different expenses in different envelopes. This is not just a practice my parents followed; it was something that was common in many households. There were envelopes with money set aside for paying bills, for school fees, buying household things, etc.…

Time has changed but the practice is ingrained in our minds. Most salaried people, as soon as they get their salary, will promptly calculate and set aside money, right from monthly provision bills, EMIs, credit card bills to cable tv bills, etc. Well, we are very disciplined and systematic when it comes to spending our money. But are we similarly systematic when it comes to investing our money? When we have multiple goals, the allocation should also be similar. When we have specific SIPs allocated for every goal, it becomes easier not to lose focus and helps us comfortably reach the requirements.

Having goal-based investments will help you assign values to the target amount and enable you to save adequately for it. It allows you to stay on course despite market volatility. For instance, you can set up independent SIPs for your retirement, dream home, vacation, education, child’s wedding, and so on. When planning your goals, prioritize them as SMART:






For instance, “I wish to save ₹7 crores by 2040 for my retirement”, becomes an example of a SMART goal. When calculating the future value of your goals, it can also be a good idea to consider inflation. Having a goal-based SIP gives stickiness and commitment to your investing behaviour. It offers you a carefully planned and organized procedure that shows you the purpose of why you are investing every rupee.

Let’s look at how practising goal-based investing through Systematic Investment Plans [SIPs] can allow you to save and grow your money for various objectives.

· Gives purpose to your money. A goal-based SIP shows you why you are investing, how much to invest and for how long. It nudges you to meet your objectives with a quantified schedule. When you map out every need, it gives you a clear picture and a specific timeline to stay invested in order to achieve the target.

· Helps maintain discipline. When you’re aware of your long-term goals, such as your retirement or your children’s education, starting a SIP in a mutual fund can create investment discipline in you. It ensures that you regularly set aside a certain amount of money for the specified period to yield adequate returns and meet your goal. It can help you strategize accordingly and prompts you to optimize your monthly surplus and budgeting.

· Enables a diversified portfolio. The main aim of having goal-based SIPs is to spread the investments to your specific future needs. When you invest in a goal-based SIP, it allocates your investments in multiple asset classes and ensures portfolio diversification.

Embarks you on the journey to financial independence. Given that you have created investments for specific goals, you can be well on your way to achieving financial freedom. That’s because, by investing your money in specific time-bound financial goals, you can eliminate the future uncertainties surrounding those goals, to a great extent.

How Mutual Funds Meet Your Goals

· Equity mutual funds. When you invest in equity funds, you put your money in equity and equity-related securities. These funds are ideal if you have a long-term goal of 5+ years.

· Debt mutual funds. These funds invest in fixed income securities. They include government bonds, money-market instruments, corporate bonds, Nonconvertible Debentures [NCDs], etc., and cash. Debt funds are ideal for short and medium goals ranging from several months to few years.

· Hybrid mutual funds. These fund schemes invest in equities and fixed income securities. Depending on your risk appetite and time horizon, you may want to invest in hybrid funds for long-term goals. It is ideal for someone looking for a portfolio with a balanced tilt between equity and debt.

· ELSS mutual funds. These funds are ideal for tax planning goals. You can claim a tax deduction of up to ₹1.5 lakhs every financial year under Section 80C, of the Income Tax Act 1961. Most ELSS mutual funds follow a flexicap approach of equity investing, hence are ideal for medium to long-term investments. As diversified equity funds, these funds give you the benefit of tax savings as well as an opportunity for capital appreciation in the long-term.

As the key to financial success, goal-based SIPs are excellent ways of maintaining discipline, keeping your emotions in check and resolving the issue of how much and where to invest. Seek out a financial advisor to help you kick-start and elevate your goal-based SIP journey today.


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