If your parents are like mine, you have been told, ” Beta, get a job after engineering and stay loyal to that company until you retire and save your money in a fixed deposit and provident fund”.

With that golden knowledge, at the age of 21, I became a chemical engineer.

I started my professional career as an operation engineer in an oil industry that literally payed me peanuts.

The money was bad, salary hike was minimal, work was very hectic and my growth was almost stagnant!

Every month my salary would barely survive till the end of the month.

A boy like me needed money to study further, to buy a bike, to buy a home, to explore the world, save up for an emergency and so many other things!

But most importantly, I needed money so that I could make my own life decisions, without having to depend on someone else.

Financial independence is one such freedom which allows us to live our lives as per our own choices.

What if I say, you can get a house, a car and a foreign trip much early in your life by investing just ₹5000 every month?

And No, I am not joking. You can!

The key to my success is goal based investments. Let me explain this to you in detail.

How I managed my finances?

We desire a lot of things, a house, a car or/and even a foreign holiday as early in our life cycle as possible.

But we’re all so busy in our day-to-day life, that we end up making hasty investment plans and it takes us years to live to our dream.

Sometimes we tend to focus so much on our short-term financial goal, that we lose track of our long-term goal.

Its not about how much money you make, but what you do with it.

Two things I started doing immediately after I got a job.

1.Smart Investments

I started investing at the age 22 into mutual fund schemes with just ₹5000 every month through SIP.

This gives me an ample amount of time to create financial independence and live up to my dreams.

2. Start saving as much as possible.

How can I invest smartly?

Investing in mutual funds is a great way to build wealth with a small amount. The earlier you start, the better it is.

We all have dreams and desires but we do not plan our investments according to our goals, most people just invest in an unplanned manner.

We need to save our hard earned money smartly. Goal based investing adds direction to any investment.

Also Read: The millennial is saving money in crazy ways to retire early!

What is goal based investing?

It is a structured, well thought out process for investing, where you know the purpose behind each rupee that is being invested.

It looks at your existing assets, expense patterns, risk profile, asset allocation and the various short, long and medium-term goals and creates a road map for each of these goals in a fairly predictable manner.

How to proceed with goal based investing?

Goal based investing comprises of two parts:

1. Planning

Determining and analyzing your current financial situation and then setting your goals.

Goal planning notifies the amount that is required to fund the goal and how much is needed to invest regularly or one-time to obtain the desired amount.

Basically, this activity involves  understanding what you want to do with your money and how you want your financial future to look like.

Goal-based planning is set in three-time frames

Short-term

Has a time frame of few months to one year. It covers immediate goals such as buying a car or going for foreign vacation in the near future.

Mid-term

Involves a time frame from one to five years. Midterm goals include buying a house or starting a business in 3-5 years down the line.

Long-term

Involves plans that are more than five years off. It includes goals such as retirement or child education.

2. Investing

Investing that amount in the most suitable product helps to achieve the goal without any difficulty.

In a planned and structured way, one’s current financial situation and future goals are evaluated and a clear plan is then drawn to help them achieve those goals in a manner that is consistent and fairly predictable.

Why should you opt for goal based investing?

Traditionally, most investors invest without any planning. When you get a bonus or inherited wealth, you would invest somewhere with the goal of just ‘saving’.

To reach your destination, you ought to have a reason attached to investment which will help you plan your finances well.

Here are some compelling reasons why you should opt for a goal based investment methodology.

1.Save less, achieve more

By identifying your long-term goals and saving for them in advance, you’ll actually be saving a lot less out of your pocket over the long-term.

2. Achieve optimal returns

A very natural outcome of goal-based investing is that you’ll end up investing in more aggressive asset classes for long-term goals, and into less volatile asset classes for short-term goals, which are say 2-3 years away.

In doing so, you’ll automatically be matching the time horizon to your asset allocation. This approach ensures that your money will grow at an optimal rate based on the risk level that is appropriate for a particular time horizon.

3. Guilt-free spending

In today’s inflationary era where a single trip to the mall could set you back by ₹5000, it’s easy to start “guilt tripping” about spending your hard-earned money.

Goal based investing takes the guilt away from spending.

Because of the ‘back of the mind’ awareness that you are saving enough to meet your long-term goals for yourself and your family, you’ll no longer feel uncomfortable about spending money for your own personal wants and needs.

4. Debt avoidance

If there’s one thing that you should avoid like the plague, it’s the burden of debt.

Over the course of our lifetime, we end up incurring a huge amount of debt for car loan, home loan, personal loan, education loan, credit card debt and what not!

By setting goals in advance and saving for them in a disciplined manner, you’ll be able to exit the vicious cycle of desire, followed by endless months of debt repayment.

You’ll be able to own your home quicker, pay off your child’s education as a lump sum, and retire as an independent citizen, free from financial worries.

5. It gives you a clear finishing line

Lastly,

The most important reason.

When you start investing for a goal, you give yourself a clear deadline and financial target to achieve.

From buying a house, to retiring from your job – you are sure to have at least a rough time-line and target amount for each of these goals.

Goal based investing isn’t a new fad that’s sweeping the industry. It’s an important concept that can go a long way to helping you build enough wealth for all your needs.

Also Read: 12 Personal Finance Hacks Every Twenty-Something Needs To Know

So, get a head-start on your goal planning today!

The 5 top funds to meet investment goals

Here is the list of 5 funds to meet your short, medium and long-term investment goals.

1. Franklin India Low Duration Fund – Direct – Growth

This fund is best for short-term investment goal with least risk.

Key information

Launch Date 1 January 2013
NAV (5th Oct 2018) ₹21.1
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹5,908 Cr
Riskometer Moderately Low
Minimum SIP ₹500
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark CRISIL Short-Term Bond  since its launch.
Age of the fund 5 years old
Expense Ratio 0.45%
Exit Load If redeemed bet. 0 Months to 3 Months; Exit Load is 0.5%;
Type  Open Ended

Performance over the years

Franklin india low duration fund
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
Franklin India Low Duration Fund - Direct - Growth 9.16% 9.27% 9.64% 0.42% NA Debt
(Low Duration )
Moderate

Investment Objective

This scheme seeks to earn regular income for investors through investing primarily in highly rated debt securities.

You can invest in this fund for your short-term investment goals.

They invest predominantly in debt instruments.

10-25% of total assets in equity related instruments and 75-90% of total assets in debt instruments. Best mutual fund in this category is:

2. ICICI Prudential Regular Savings Fund – Direct – Growth

This fund is for your short to medium term investment goals.

Key Information

Launch Date 1 January 2013
NAV (5th Oct 2018) ₹41.7
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹1,641 Cr
Riskometer Moderately High
Minimum SIP ₹1,000
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY 50 Hybrid Composite Debt 15:85 since its launch.
Age of the fund 5 years old
Expense Ratio 1.23%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Returns per annum

ICICI Prudential Regular Savings Fund – Direct – Growth
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
ICICI Prudential Regular Savings Fund - Direct - Growth 6.38% 11.45% 12.56% 1.36% 167% Hybrid
(Conservative)
Moderately High

Investment Objective

This fund invests predominantly in debt instruments. 10-25% of total assets in equity related instruments and 75-90% of total assets in debt instruments.

This fund is one of the best for short-term investing.

3. ICICI Prudential Bluechip Equity Fund – Direct – Growth

This is one of the best large cap funds available in market right now. You can choose this fund for your medium-term investment goals.

Key information

Launch Date 1 January 2013
NAV (5th Oct 2018) ₹40.6
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹16,539 Cr
Riskometer Moderately High
Minimum SIP ₹100
Minimum SWP ₹100
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY 100 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 1.17%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Returns per annum

ICICI Prudential Bluechip Equity Fund
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
ICICI Prudential US Bluechip Equity Fund - Direct - Growth 17.31% 16.73% 12.31% 1.1% 74% Equity
(Sectoral/Thematic)
High

Investment Objective

This fund seeks to generate long-term capital appreciation and income distribution to unitholders from a portfolio that is invested in equity and equity related securities of about 20 companies, belonging to the large cap domain and the balance is invested in debt securities and money market instruments.

You can invest in this fund with a monthly SIP of just ₹100.

4. Principal Hybrid Equity Fund – Direct – Growth

This fund belongs to aggressive category of hybrid scheme. This fund is for Medium term investment plan.

Key information

Launch Date 1 January 2013
NAV (5th Oct 2018) ₹76.6
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹1,480 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark CRISIL Hybrid 35+65 Aggressive since its launch.
Age of the fund 5 years old
Expense Ratio 1.43%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Returns per annum

Duration Returns
1 year 8.4%
3 years 16.4%
5 years 19.2%
Since launch 16.3%

Investment Objective

The aim of this fund is to generate long-term capital appreciation and current income by investing in a portfolio of equity, equity related securities and fixed income securities.

However, there is no assurance or guarantee that the investment objective of this scheme will be achieved.

5.HDFC Small Cap Fund – Direct – Growth

This is one of the most popular small cap mutual fund in the market right now. This fund is for long-term investment plan.

Key Information

Launch Date 1 January 2013
NAV (5 Oct 2018) ₹43
Plan Type Direct
Rating by Groww 5 Star
AUM (Fund Size) ₹4,143 Cr
Riskometer Moderately High
Minimum SIP ₹500
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark NIFTY Small-cap 100 TRI since its launch.
Age of the fund 5 years old
Expense Ratio 0.54%
Exit Load If redeemed bet. 0 Year to 1 Year; Exit Load is 1%;
Type  Open Ended

Returns per annum

HDFC Small Cap Fund
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
HDFC Small Cap Fund - Direct - Growth -12.49% 20.65% 20.97% 0.81% 17.96% Equity
(Small Cap)
Moderately High

Investment Objective

The investment objective of the scheme is to generate long-term capital growth from an actively managed portfolio of equity and equity-related securities including equity derivatives by investing predominantly in small-cap companies.

However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.

This fund has exponential growth potential and gives high returns on investment.

This fund is best suited for investors with a high-risk appetite and even for seasoned investors.

Investors who have a very good idea of mutual funds and the risks associated with them can opt for this fund.

Where did I save my money?

The average savings of the Indian middle-class person comes to be around ₹10,000 per month. But he/she should save 30% of his or her earning to survive in an uncertain world like ours.

Discipline and self-regulation are the cornerstones of a successful investment plan.

I know it is difficult to cut away expenses when everyone around you is spending as if there is no tomorrow. The advent of tremendous peer pressure can cause a level-headed youngster to stumble.

Also Read: 10 Ways a Salaried Person Can Save Up to 50% of Their Income

Sometimes the hardest thing about saving money is just getting started.

Conclusion

There are many things that I’m working on to improve my financial planning.

In a dynamic world, such as our’s, good enough isn’t perfect.

If you’ve decided to become financially independent by investing in mutual funds, you need to set a goal.

The earlier you start, the faster you will live your dream of having a car, a house and exploring the world.

It might take a while before you reach that goal, but It is necessary that you remain patient during this period. Reacting to short-term volatility can negatively affect your investments in the long-term.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww