Importance Of Planning To Fund Future Goals

In everybody’s life there are some typical financial goals like children’s education, their marriage, one’s own retirement, owning or building a house, and so on. Each of these future goals has a cost attached to it, which unfortunately increases every year due to inflation. For instance, funds required for a child’s education today and 15 years later would be dramatically different. Therefore, to ensure that you have sufficient funds for your future goals, you need to acknowledge the importance of financial planning through appropriate investments.

Consider this example: if you are in your mid-thirties with two children and have 24 years of working life ahead of you, the total corpus required would be ₹8.54 crore for your children’s education, marriage and your retirement. If the current education cost is ₹20 lakhs, you would require nearly ₹36 lakhs for your first child’s education in 2031 after taking inflation into consideration. This would go up to ₹48 lakhs for the second child in 2036. Further, the cost of marriage which currently may be at ₹40 lakhs will shoot up to ₹1.07 crore for the first child in 2038.

And for the second child it could be ₹1.44 crore in 2043. The retirement corpus you would require after hanging up your working gloves in 2046 for the next 25 years would be ₹5.2 crore. It’s worth mentioning that all financial goals can be financed as loans are available for education, marriage and home buying, among others. However, there is no loan available for your retirement which is one of the most important and vulnerable phases of your life. Hence, retirement should be considered a top priority goal, which, however, is seldom given attention to.

Investment Options — A majority of investors opt for bank fixed deposits (FDs), land, and gold, and even direct investments in the stock market. However, none of them may be suitable for meeting your financial goals given the inflation and various other restrictions which each asset faces. For instance, returns offered by fixed deposits with banks will not only fail to meet your required funds but also are unable to beat inflation. Land, which is an investor’s favourite option, has acute liquidity issues while buying as well as selling. 

Moreover, land is a big ticket size purchase and requires a tremendous one-time amount of money. Gold, yet another favourite among buyers, is good for hedging purposes. But when it comes to long-term capital growth, gold may not be a good investment option. On the other hand, direct stock investment could be highly risky. It may be of great help if you have the required skills, knowledge and time to track the market. However, a majority of investors fail to meet these parameters and end up burning their pockets.

Making the Right Choice — Investment through mutual funds is one of the best ways to create inflation-beating wealth which can take care of each of your future goals, including retirement. The higher liquidity aspect along with higher returns makes mutual funds an efficient investment vehicle to meet your goals. It won’t be wrong to say that mutual funds offer a ‘one stop’ solution’ for your all future goals. Various features like diversification, asset allocation and professional money management which mutual funds offer make it a suitable product for all. One can either start investing with a lump sum amount or can opt for systematic investment, or both. 

Flexibility like additional purchase, systematic and partial withdrawal, pause feature, top-up investments and, most importantly, tremendous transparency make mutual funds a ‘must have’ in investors’ portfolios. Further, an early start is the key to creating wealth. The more time spent in the market, the higher is the wealth generation. Taking into consideration a compounded annual return of 12 per cent, an SIP of ₹20,000 per month for 25 years with a top-up of 10 per cent every year will yield an amount of ₹7.88 crore. However, if you delay your investment, say by five years, the wealth generated would only be ₹3.73 crore.

Thus, what is crucial is the fact that the investment amount should be proportionate to your financial goals and the tenure available. If your goals are planned well in advance, the required funds may not be difficult to have and all your future goals will be met successfully if you ride on mutual funds with a disciplined approach. The crux of the matter is that if your investment objectives are well-structured and you have taken into account all such factors that may impact your investment such as inflation, etc., the best course to adopt would be to invest in mutual funds. Here, the risk factor is also manageable, which is what makes it all the more attractive.

Shekhar Agrawal
Mutual Fund Distributor

The writer is Mutual Fund Distributor ■ Email : pawan.ajay@yahoo.com