Stephen Covey says.’ Begin with an end to mind’-a principle that cannot be emphasized enough, especially investing.

Why do you want to invest? Is it because of exuberance in the Equity Markets or colleagues in Office making investments so you don’t want to left behind. Once we answer this WHY, our job is half done.

So, the first question we need to ask yourself is Why are we investing?

1. I want to save up for my higher education
2. I want to save for my marriage
3. I want to travel around the world on 80 days
4. I want to save to buy home
5. I want to save for my children’s education
6. I want to be financially free by 50 years of age

mutual-fund-smart-goals-in-financial-planningGet Set Goal

Like any other goals, Financial goals need to be SMART

S- Specific
A- Achievable
R- Realistic
T- Time Based

While listing down your goals, aspire for goals that are well within your means (realistic too). Don’t expect your money to double in a year. Wishful thinking and unrealistic goals will not help our cause. Also, remember that all of us are unique individuals and our needs and aspirations are different from our friends/peers. So, our goals are not same as our friends.

Financial goals are important and significant for financial planning. A good investment plan is the one which has got products against each goal and which doesn’t lead to any sort of present or future confusion for the investor.

Mutual Fund offers something for every kind of investor. Investment is a function of the time horizon and risk tolerance of an individual.

One must know if a mutual fund investment is being done for higher education, retirement which will essentially be long term or if some liquidity concerns are anticipated.

On line risk profiling tools are available-It will be good if before investing we could use them and find what type of investor we are. Are we the ones who will constantly be worried about our Principal money, or are we risk takers or we love the S-safety part of the investment that we don’t mind ignoring L-Liquidity and R-Return

Once we are clear with our financial goals, time horizon, risk appetite the next step is to pick the right mutual fund which fits in our Investment Plan. There is plethora of options with more than 1000 plus MF schemes to choose from. So how so we choose the right fund?

Many a times we just look at the top performing funds or go by references our friends/colleagues have given and we go ahead with the investments. Is that the way? ‘No’. Investing in mutual funds requires as much strategic inputs as any other investment option.

Identify funds whose investment objectives match your financial goals and asset allocation

Just as you would buy a car that fits your needs and budget, you should choose a mutual fund that meets your investing objectives. So, if your financial goal like children’s higher education is more than 10 years away you could look at an equity fund.

Fund House Pedigree

Even Before zeroing down on a scheme, you must select the fund houses on which you have enough faith to invest your money. Try to identify fund houses that have a strong presence in the financial world and provide funds that have a reasonably long and consistent track records.

A strong parentage would ensure efficient processes and the capability to build a strong business. In turn, these processes, which are a combination of investment processes, risk measures and operational efficiency, would ensure a sustained performance over a longer period.

Evaluate past performance, look for consistency

Although past performance is no guarantee for the future, it is a useful reference point to assess how well or badly a fund has performed in comparison.

Consistency is key: Will you invest in an equity fund that gave over 100% returns at a time when the equity markets were witnessing a secular bull run but showed a sharp drop in net asset value (NAV) when the markets were volatile? You don’t want a fair-weather friend, do you? A good mutual fund scheme is one that consistently manages to outperform its benchmark over 3-5 years.

Look for consistency in performance over longer tenures like 3, 5 and 10 years, if that is available, rather than the short-term returns. Select schemes that have consistently beaten their benchmark indices (index to which a fund’s returns are compared) and compare reasonably with their peer set over the above time frames.

Risk-Return Trade-Off

Investments in financial products come with a degree of risk and if returns are not in proportion to the risks taken, it is not worth going for such investments

A good mutual fund is one which gives better returns than others for the same kind of risk taken.

Risk-adjusted returns are evaluated against return given by a risk-free instrument- usually government-backed debt papers or term deposits of banks.

Portfolio Diversification

By its very nature, mutual funds are supposed to provide diversification across different asset classes, stocks, sectors and even geographies. A diversified portfolio has lower risk than a portfolio biased towards a particular stock, an asset class or a sector.

You can check the portfolio history of a particular scheme and see if the fund has been historically maintaining a well-diversified portfolio. Look at the monthly portfolio of a particular scheme on the website of a fund house.

Expense Ratio

The cost of investing through a mutual fund is not insignificant and warrants our due attention.

The ratio is the annual expenses incurred by the funds expressed in percentage of their average net asset. To make the choice between two similar funds, you should consider the expenses charged by them. Lower expenses benefit you in the longer term. Usually, schemes with higher assets have lower expense ratio than that of a smallsized fund.

As the funds grow larger in size, the fixed expenses associated with the fund get spread out over more investors, reducing the expenses and leaving more funds for investment.

Mutual Fund and Financial Planning

There is a Mutual Fund for all your Financial Goals

• For contingencies, liquid funds will meet our objective since they don’t have no lock-in period
• For goals, which are 1 to 3 years away, and we are looking for low risk option, income funds will be more suited
• For goals, which are 5 years away, and where we are okay with slightly higher risk, invest in hybrid funds
• For goals, which are likely to happen between 3-6 years, combination of debt and equity funds can be chosen
• When goals are long term and risk taking, ability is highest, equity based fund is one of the best options. Over the long-term, equity has usually outperformed all other asset classes.

Many a times, we find our investors perplexed with little or half information. They find financial markets complex as the clarity on funds is not available and that which is there is complex to understand and comprehend. However, at SBS Fin, we follow due diligence in selecting a fund for a particular portfolio as it should be as per the financial goals and shall be adherent to the investment plan of an investor.

If you are looking for a mutual fund and need an expert opinion on the same, feel free to write to us on

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