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!
In this article
- Goal-Based Investing
- Advantages of Goal-Based Investing
- The Aggressive Investor
- 1.HDFC Small Cap Fund
- 2.L&T Emerging Businesses Fund
- 3. Parag Parikh Long Term Equity Fund
- 4. Mirae Asset India Equity Fund
- The Moderate Investor
- 1.Invesco India Contra Fund
- 2. Axis Focused 25 Fund
- 3.Principal Focused Multicap Growth Fund
- 4.Tata Equity PE Fund
- 5.Aditya Birla Sun Life Corporate Bond Fund
- 6.Franklin India Corporate Debt Fund
- The Conservative Investor
- 1. Axis Bluechip Fund
- 2. ICICI Prudential Bluechip Fund
- 3. ICICI Prudential Nifty Next 50 Index Fund
- 4. Franklin India Low Duration Fund
- 5. Franklin India Ultra-Short Bond Fund
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.
| Equity | 100% |
| Debt | 0% |
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.
| Risk | High |
| Lump sum | Rs 1,00,000 |
| SIP | Rs 50,000 |
| Invested Amount | Rs 37,63,000 (approx.) |
| Final Value | Rs 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
| Fund Name | 1Y | 3Y | 5Y | Expense Ratio | Turnover Ratio | Category | Risk |
|---|---|---|---|---|---|---|---|
| HDFC Small Cap Fund Direct Growth | -13.68% | 9.64% | 11.01% | 0.85% | NA | Equity
(Small Cap) |
Moderately High |
| L&T Emerging Businesses Fund Direct Growth | -16.13% | 8.8% | 11.77% | 0.9% | 26% | Equity
(Small Cap) |
High |
| Parag Parikh Long Term Equity Fund Direct Growth | 1.15% | 12.14% | 11.55% | 1.33% | 229% | Equity
(Multi Cap) |
Moderately High |
| Mirae Asset Large Cap Fund Direct Growth | 1.16% | 11.57% | 11.73% | 0.63% | 22% | Equity
(Large Cap) |
Moderately High |
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.
| Equity | 60% |
| Debt | 40% |
Upon using Groww’s calculator, the following is one of the good ways of creating wealth in five years.
| Risk | Moderate |
| Lump sum | Rs 1,00,000 |
| SIP | Rs 52,000 |
| Invested Amount | Rs 39,09,500 (approx.) |
| Final Value | Rs 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.
| Fund Name | 1Y | 3Y | 5Y | Expense Ratio | Turnover Ratio | Category | Risk |
|---|---|---|---|---|---|---|---|
| Invesco India Contra Fund Direct Growth | -5% | 11.51% | 12.22% | 0.92% | 64% | Equity
(Contra) |
Moderately High |
| Axis Focused 25 Direct Plan Growth | -1.97% | 12.86% | 13.12% | 0.74% | 60% | Equity
(Focused) |
Moderately High |
| Principal Focused Multicap Fund Direct Growth | -1.92% | 7.21% | 7.58% | 1.97% | 83% | Equity
(Focused) |
Moderately High |
| Tata Equity PE Fund Direct Growth | -6.73% | 9.22% | 10.65% | 0.41% | 26% | Equity
(Value) |
Moderately High |
| Fund | Allocation |
| Invesco India Contra Fund | 15% |
| Axis Focused 25 Fund | 15% |
| Principal Multicap Growth Fund | 15% |
| Tata Equity PE Fund | 15% |
| Aditya Birla Sun Life Corporate Bond Fund | 20% |
| Franklin India Corporate Debt Fund | 20% |
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.
| Equity | 40% |
| Debt | 60% |
Upon using Groww’s calculator, the following is one of the good ways of creating wealth in five years.
| Risk | Moderate |
| Lump sum | Rs 1,00,000 |
| SIP | Rs 53,000 |
| Invested Amount | Rs 40,00,000 (approx.) |
| Final Value | Rs 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
| Fund | Allocation |
| Axis Bluechip Fund | 13.30% |
| ICICI Prudential Bluechip Fund | 13.30% |
| ICICI Prudential Nifty Next 50 Index Fund | 13.30% |
| Franklin India Low Duration Fund | 30% |
| Franklin India Ultra-Short Bond Fund | 30% |
| Fund Name | 1Y | 3Y | 5Y | Expense Ratio | Turnover Ratio | Category | Risk |
|---|---|---|---|---|---|---|---|
| Axis Bluechip Fund Direct Plan Growth | 6.6% | 13.81% | 11.14% | 0.83% | 41% | Equity
(Large Cap) |
Moderately High |
| ICICI Prudential Bluechip Fund Direct Growth | -2.57% | 9.2% | 9.26% | 1.21% | 144% | Equity
(Large Cap) |
Moderately High |
| ICICI Prudential Nifty Next 50 Index Direct Growth | -9.77% | 6.17% | 9.09% | 0.39% | 63% | Others
(Index) |
Moderately High |
| Franklin India Low Duration Direct Plan Growth | 9.3% | 8.84% | 9.37% | 0.49% | NA | Debt
(Low Duration) |
Moderate |
| Franklin India Ultra Short Bond Fund Super Institutional Direct Growth | 10.13% | 8.93% | 9.31% | 0.42% | NA | Debt
(Ultra Short Duration) |
Moderate |
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!
