Set Your Goals Before Investing In Mutual Funds

By | May 28, 2016

Mutual Funds

Everybody wants to learn how to pick good investments. However, very few make preparations before investing. Just like you need to have all the ingredients listed out and on hand before making a dish, you need to follow certain steps if you want to get the best out of your investments. These steps are more important than choosing great investments.

  1. Determine your goals and how much it will cost you to achieve those goals

Before investing always have a goal, like funding your child’s education, building a house or your retirement. Decide how much money you will need to meet that goal.

It is easy to determine how much money you will need to build your house or fund your child’s education. But, it is difficult to determine the money you will require after you retire. Here’s some help. First, decide on what lifestyle you plan to lead. Simple? Extravagant? Somewhere in the middle? Then think of the expenses that you might incur. The main ones will be housing costs (rentals, repairs etc.), medical expenses and entertainment expenses (concerts, theatres, religious places – that’s not exactly entertainment, but you know what we mean). Others may be transportation costs, pilgrimage expenses, gifts for the grandchildren and so on.

After determining the money you would require, estimate the number of years you have till you will need the money. Don’t forget to take inflation into account!

Determining your goals will help bring discipline to your investing. Estimating the number of years you will be funding the goal will help you decide on your investment style. The more the number of years to your goal, the more aggressive you can be with your investments (read equities!). As you get closer to the goal you should become conservative (read Fixed Deposits). This will help you protect your gains.

  1. Determine your asset allocation

The most important step before investing is deciding your asset allocation. Your asset allocation is your portfolio’s mix of shares, bonds, and cash. Equities are obviously riskier than bonds/cash. So, just like some may want more cheese or more sauce for their pizza, others might like more equities or more bonds in their portfolio. Finding the best asset mix is crucial if you want to meet your goals. Your asset allocation depends on the following:

  • Number of years to your goal
  • Money needed for the goal
  • How much can you invest now?
  • How much can you invest each month?
  • And the most important – how much risk can you take?

If your risk tolerance is low, you should allocate more funds to fixed income securities, that is, bond funds. If you have a high risk tolerance level, you can invest more in equities, that is, equity funds. The higher your tolerance, the higher should be your allocation to equities.

If you have only a few years to meet your goal, invest more in bond funds. If you have many years to achieve your goal, invest more in equity funds. The longer the time, the bigger the allocation to equities.

  1. Would you prefer a lump sum or SIP?

Systematic Investment Plans (SIP) are very popular and allow you to invest small sums over at regular intervals over a period of time. They keep averaging out the cost of owning your Mutual Funds. But, if you are thinking about investing lump sums such as your yearly bonus, you can do that too. Ideally you should be investing through both routes.

  1. What if you need money before you reach your goal? 

Do not invest all your money. Always have some money on hand in case of an emergency. This will ensure that you do not have to sell your investments before you reach your goal. The best place to keep your emergency fund is in your savings account or your deposit account having a sweep-in, sweep-out facility. You could also consider liquid funds for keeping your emergency funds if you want to earn interest that is a bit higher than your savings account.

Investments require you to stay committed in the long run if you want to get the best out of them. Mutual funds are no different. Loans need to be closed quickly while investments need to be nurtured for a long time. This is the best rule to follow to remain financially healthy.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit for the latest rates/offers.

2 thoughts on “Set Your Goals Before Investing In Mutual Funds

  1. Deepak Bhaskar Bhor

    Hi my name is Deepak 29 yrs old married man
    Can you help me out regarding my Mutual fund Portfolio
    My Currnetly Portfolio :

    DSP BR Micro-Cap Fund (G) (Growth) – 1000
    Canara Robeco Emerging Equities (G) (Growth) -1000
    Birla Sun Life Frontline Equity Fund (G) (Growth) -3000
    Mirae Asset Emerging Bluechip Fund (G) (Growth) – 1000
    Tata Balanced Fund – Regular (G) (Growth) -1500
    ICICI Prudential Value Discovery Fund (G) -2000

    Total current cost:1,00,000

    I have started my monthly SIP in above mutual fund schemes before one year. As you have seen i have purchased too may schmes
    Investing in too many funds will not help me gain maximum profit,So i have decided to close some scheme
    for e.g I am planning to close either DSP BR Micro-Cap Fund (G) (Growth) – 1000 or
    Canara Robeco Emerging Equities (G) (Growth) -1000 and contine with one schme with monthly sip 2000 Because both the schmes are in Small & Mid cap

    Kindly advice me which should i close and contine.
    My risk taking ability is Moderate and I have a long term wealth creation horizon(10 Years Or More than 10 Years)

    Also in this year (2017) i am going to take home loan of 20,00,000 Lakhs so kindly advice me accordingly

    I have selected above funds for goals
    Retirement & Child’s education and marriage –Birla Sun Life Frontline Equity Fund (G) + ICICI Prudential Value Discovery Fund (G) -2000 + Tata Balanced Fund – Regular (G) (Growth) -1500

    Wealth creation – Canara Robeco Emerging Equities (G) (Growth) -1000+DSP BR Micro-Cap Fund (G) (Growth) – 1000+Mirae Asset Emerging Bluechip Fund (G) (Growth) – 1000
    Plan your taxes — Taking Home Loan
    Short Term Goals –Planning to take Reliance money manager fund

    Thanks in advance
    Deepak B

    1. Team BankBazaar

      Hi Deepak, While we do provide general tips and advice on personal finance, we will not be able to provide guidance on specific queries. We would love to help but due to the specific nature of your question, we suggest that you consult your financial advisor to sort this out. Cheers, Team BankBazaar


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