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Looking at Investment Options for Your Financial Goals

So for we have completed two steps of Financial Planning. In the first one that is understanding your current financial status, we have seen cash flow statement role and net worth statement in detail. With the help of these two statements, we can assess our current financial status at a given point in time. In the second step that is writing down your financial goals, we have seen how important it is to write down your goals, quantify them and also put certain timelines to your goals. In the current video, we are going to cover the third step of financial planning in detail that is looking at investment options for your financial goals. There are a lot of investment options available in the market like traditional debt instruments deadlines, debt funds, pure equity, equity funds, etc.But what options you ultimately choose for your financial goals depend on four factors which are listed here,

Four Factors of Financial Goals

  1. Time available for your goal or investment horizon. 
  2. Current financial position.
  3. Returns expected 
  4. Risk profile.

Let's try to understand the influence of these four factors on our investment decision with the help of an example. let's take the example of purulent polite, they want to send their daughter for higher education in the US. The current cost is 25 lakh rupees and they have 16 years in hand and of inflation is assumed as 7% and the future cost would work out to be 73.6 lakh. So what should be the investment option over you, whenever your investment horizon is more than five years away, the best assets class to invest in is equity. So if they have made no investments towards the goal until the date and have returned expectation of about 12%, they should start a SIP of 12600 rupees into diversified equity mid-cap funds. Because these funds may give returns about 12%. Let's check how the four factors would now influence this investment decision.

The first factor is time available. So what if the time in hand changes for someone who just has two years in hand. The future cost would work out to be 28.62 lakhs which are two years in hand this person must have saved something towards this goal and whatever coups he might have accumulated, he should not invest into equity because equity would be volatile in the short term. Whenever your investment horizon is less than three years away you should invest into the dead asset class and so whatever corpus he has accumulated, he should invest in debt funds or traditional debt instruments. And in case he has not saved anything educational loan is the only solution. Because collecting 28.62 lakh rupees in two years time frame would be very difficult. The next factor that would influence your investment decision is your current financial position. 


So let's assume that the entire case remains the same. But you have already set aside 10 lakh rupees for this particular goal. So you would invest your lump sum 10 lakh rupees into equity mutual funds which may give you returns about 12%. This will build a corpus of about 61.3 lakh rupees after 16 years. For the remaining amount, you could start a SIP of 2150 rupees again into equity mutual funds which may give you returns about 12%. But since you already have 10 lakh rupees in hand you could invest your 10 lakh rupees as a lump sum into deby mutual funds which may give you returns about 85. This would build a corpus of about 34.25 lakh rupees. And for the remaining amount, you could start a SIP of 6802 rupees into equity mutual funds which may give you returns about 12%. So you see a stronger financial position enables you to reach your financial goals even by taking less risky route. 

The next two factors that influence your investment decision are returns expectations and Risk profile. These two factors are interrelated. The higher your risk taking capacity, the better you don't you expect. So unlike purulent polite, if you expecting just returns about 8% you could start a SIP of 18,934 rupees into dead mutual funds. In case you want to take more interest than purulent polite and are expecting returns about 15% you could start a SIP of 9241 rupees into small-cap diversified equity mutual funds. Because these mutual funds may give you returns about 15%. And in case you want to take even more risk and expecting returns more than 15% you just not being practical. So a lesser is taking capacity just pushes up your investment amount which again depends upon your financial position. Are you able to spare a higher amount with other goals on your plate. And in certain cases and if you are not ready to take the risk, you might have to compromise with your goal itself. So there may be situations when you are not ready to take risk, but then you have to because you want to reach your financial goal.