Buy a car or go for a foreign holiday? Goal-based investing can help you plan better

Buy a car or go for a foreign holiday? Goal-based investing can help you plan better

Investing that amount in the most suitable product helps to achieve the goal without any difficulty.

We all have dreams and desires but we do not plan our investments according to our goals, most people just invest in an unplanned manner. Goal based investing adds direction to an investment. A structured, well thought out process for investing, where you know the purpose behind each rupee that is being invested is known as goal based investing. It looks at your existing assets, expense patterns, risk profile, asset allocation and the various short, long and medium-term goals and creates a road map for each of these goals in a fairly predictable manner.

It comprises of two parts - planning & investing. Goal planning notifies the amount that is required to fund the goal and the how much is needed to invest regularly or one-time to get to the desired amount. Investing that amount in the most suitable product helps to achieve the goal without any difficulty.

Getting the best out of goal-based investing

Determine and analyze your current financial situation and then set goals. This activity involves in understanding what you want to do with your money and how you want your financial future to look like. Goal based planning is set in three time frames; short-term, mid-term and long-term.


  • Short-term: Has a time frame of few months to one year. It covers immediate goals such as buying a car or going for foreign vacation in the near future.
  • Mid-term: Involves a time frame from one to five years. Midterm goals include buying a house or starting a business in 3-5 years down the line.
  • Long-term: Involves plans that are more than five years off. It includes goals such as retirement or child education.

Why should you go for it?

"I would say this is the only way to invest, else you would not know to which end use each rupee is being put to" says, Priya Sunder, Director - PeakAlpha Investment Services. If you don't know where you are headed, any road will take you there. If the direction you are headed is not aligned to your goals, then the risk is that you may end up in a place where you did not intend to be. Goal based investing ensures that the product selected is appropriate for investment and would help you achieve your goals. Investing in equity to fund short term goals can be fatal if the market turns unfavorable. "Knowing your goals, knowing the best suited product will deliver the best possible return and happy investing experience" says, Tanwir Alam, CEO of Fincart, an online financial advisory.

"Wealth creation happens over a long term period only. The secret sauce to wealth creation is Power of compounding" says, Alam. Power of compounding does not work efficiently for goals less than 5 years of time horizon. Hence the approach to achieving the goals that will mature in less than 5 years will be different from the ones that are more than 5 years away. Investing in equity funds for short term goals can be fatal if the market turns unfavorable.

For goals beyond 5 years the focus should be to maximize returns; whereas for goals that will mature in less than 5 years, the focus should be to preserve capital and to ensure to generate better post-tax returns when compared with fixed deposits.

"It is better not to change the investment too often, just keep a watch on your goals. If you have long term goals, as you get nearer to your goals, shift into lesser riskier product" adds Alam. Keep your investments simple for being financially fit and fabulous. Stick to the plan, monitor it regularly, invest keeping the goal in mind, and do not get affected by short term volatility. "Returns are important, but not the most critical element in the plan; instrument selection is the last step in the process - it is a means to an end, not the end in itself" says, Sunder. Don't get distracted by marginal performance difference between schemes, as long as you are invested in good funds, the returns tend to average out in the long run.

How to go about it?

In a planned and structured way one's current financial situation and future goals are evaluated and a clear plan is then drawn to help them achieve those goals in a manner that is consistent and fairly predictable.

The planning process involves determining how much money you will need to fund your goal; how much would you need to invest either monthly or one-time to achieve that goal and choosing an appropriate product that best suits the time horizon of investment, providing optimum returns and minimum risk.

With the coming of robo-advisory the hassle is further reduced, as it helps in taking sound decisions without the necessary market knowledge. All you need to do is log-in and put in your preferences and it will tell exactly how much you need to invest and the best suited product - this ensures that you achieve your goals confidently.