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You probably know that investing without a strategy is probably the worst idea. What is the solution to this?

To start with, it is good to have an objective while investing. In this blog, we seek to help you understand about goal-based investing while covering how to plan for your goal with varying risk appetite.

We shall also include a sample case of accumulating the wealth of Rs. 50 lakhs in five years.

Read on!

Goal-Based Investing

Goal-based investing has been the talk of the town in the wealth management industry. The relatively new approach has been emphasizing on investing with an objective of attaining specific goals.

The approach takes into account the requirement of the client, investment horizon available, and accordingly assesses the risk profile of the investor

Based on the risk profile, the asset allocation is determined, and post-allocation, the best stands that can strive to achieve the goal is taken for investment purpose.

Advantages of Goal-Based Investing

  • Investor’s commitment to goals by observing and participating in the process
  • Reduction in impulsive decision-making and overreaction based on market movement

Let us now discuss the topic of the day. The goal is to accumulate a wealth of Rs 50 Lakhs in five years.

For the goal, we shall adopt a different approach concerning an investor’s risk profile. Following are the three categories of investors’ considered:

  • Aggressive
  • Moderate
  • Conservative

Remember, the portfolio creation for the individuals belonging to three categories would differ. Let us begin with the process of portfolio creation.

The Aggressive Investor

For Aggressive investor who is a risk taker, we believe the following allocation is ideal.

Equity100%
Debt0%

With 100% equity, the risk increases and the returns also increase accordingly. Upon using Groww’s calculator, the following is one of the best ways of creating wealth in five years.

RiskHigh
Lump sumRs 1,00,000
SIPRs 50,000
Invested AmountRs 37,63,000 (approx.)
Final ValueRs 50,22,000 (approx.)

Given your salary or income from the business is likely to grow every year, we have assumed 10% increment in your SIP value from second year onwards.

Based on 100% equity allocation, we believe the following funds shall help an investor reach his/her goal

1.HDFC Small Cap Fund

The fund seeks to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities including equity derivatives.

2.L&T Emerging Businesses Fund

The fund seeks to generate long-term capital appreciation from a diversified portfolio of equity and equity-related securities including derivatives.

The portfolio comprises of the names from the Indian markets with the key theme being small-cap stocks. Additionally, the scheme can also invest in foreign securities.

Note, emerging companies are businesses that are in the early stage of development and have strong growth potential for both revenue and profit when compared to the industry average.

3. Parag Parikh Long Term Equity Fund

The fund sees to generate long-term capital growth from an actively managed portfolio primarily of equity and Equity Related Securities.

Snapshot

4. Mirae Asset India Equity Fund

The fund seeks to generate long-term capital appreciation by capitalizing on potential investment opportunities through predominantly investing in equities, equity-related securities.

The Moderate Investor

For an investor with a moderate risk profile, the following allocation is ideal.

Equity60%
Debt40%

Upon using Groww’s calculator, the following is one of the good ways of creating wealth in five years.

RiskModerate
Lump sumRs 1,00,000
SIPRs 52,000
Invested AmountRs 39,09,500 (approx.)
Final ValueRs 50,18,000 (approx.)

Given your salary or income from the business is likely to grow every year, we have assumed 10% increment in your SIP value from second year onwards.

We believe the following funds shall help an investor reach his/her goal.

FundAllocation
Invesco India Contra Fund15%
Axis Focused 25 Fund15%
Principal Multicap Growth Fund15%
Tata Equity PE Fund15%
Aditya Birla Sun Life Corporate Bond Fund20%
Franklin India Corporate Debt Fund20%

1.Invesco India Contra Fund

The fund seeks to generate capital appreciation by investing in a portfolio comprising of equity and equity-related securities by adopting a contrarian style of investing strategy.

2. Axis Focused 25 Fund

The fund seeks to generate long-term capital appreciation by investing in a concentrated portfolio. The portfolio comprises of equity and equity-related securities of up to 25 companies, primarily in companies among the top 200 regarding market capitalization.

3.Principal Focused Multicap Growth Fund

The fund seeks to provide long-term capital appreciation by investing in equities and equity-related instruments.

The fund aims to lower the risk considerably with the professional management and diversification offered by the asset management company.

4.Tata Equity PE Fund

The fund seeks to provide capital appreciation by investing nearly 70 percent of the fund corpus in equities having a trailing P/E ratio less than that of the BSE Sensex at the time of investment.

5.Aditya Birla Sun Life Corporate Bond Fund

The fund seeks to provide optimal returns with high liquidity through active management of the portfolio by investing in High-Quality Debt and Money Market Instruments.

6.Franklin India Corporate Debt Fund

The scheme seeks primarily to provide investors with Regular income and Capital Appreciation.

Let us now move to the last section that is the conservative investor.

The Conservative Investor

For an investor with a conservative risk profile, the following allocation is ideal.

Equity40%
Debt60%

Upon using Groww’s calculator, the following is one of the good ways of creating wealth in five years.

RiskModerate
Lump sumRs 1,00,000
SIPRs 53,000
Invested AmountRs 40,00,000 (approx.)
Final ValueRs 50,00,000 (approx.)

Given your salary or income from the business is likely to grow every year, we have assumed 10% increment in your SIP value from second year onwards.

We believe the following funds shall help an investor reach his/her goal

FundAllocation
Axis Bluechip Fund13.30%
ICICI Prudential Bluechip Fund13.30%
ICICI Prudential Nifty Next 50 Index Fund13.30%
Franklin India Low Duration Fund30%
Franklin India Ultra-Short Bond Fund30%

 

1. Axis Bluechip Fund

The fund seeks to generate long term capital growth by investing in a diversified portfolio consisting of equity & equity related instruments of large-cap companies.

2. ICICI Prudential Bluechip Fund

The fund seeks to provide long-term capital appreciation and income distribution from a portfolio of equity and equity-related securities of large-cap companies.

3. ICICI Prudential Nifty Next 50 Index Fund

The fund invests in companies that are included in the Nifty Next 50 Index and seeks to achieve the returns of the above index as closely as possible.

4. Franklin India Low Duration Fund

The fund seeks to provide regular income for investors through investment primarily in highly rated debt securities.

5. Franklin India Ultra-Short Bond Fund

The fund seeks to enhance income that is consistent and is coupled with a high level of liquidity. It is achieved by a judicious portfolio mix of money market and debt instruments.

Thus, to conclude we can say that goal based investing is a robust investing approach that seeks to help people meet their lifestyle goals.

To achieve the objective, an investor should place the goal right at the center of the investing process and build a strategy around the same by taking into consideration the risk-return profile, investment horizon.

Happy Investing!

 

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