When it comes to money, most people focus on how much they earn or save, but the real question is: what are you saving for? Goal-based investing flips the spotlight from random saving to purpose-driven planning. From securing your child’s future, buying your dream home, or retiring comfortably, goal-based investing gives every rupee a clear mission. In this blog, we break down what it means, why it matters, and how you can start investing with your dreams in mind.
Key Takeaways
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Under normal circumstances, almost everyone has financial goals. For example, buying a car, owning a house, paying for a child’s higher education, retirement, going on an international vacation, and so on.
You may have a goal to have enough income to live off your retirement years or buy a holiday home after you retire and spend your time there.
Goal-based investing is a process where your goals are an inseparable part of your investment strategy. In goal-based investing, your goal is of prime importance. Your investment goals will help you decide:
Goal-based investing puts you in a driver's seat as you are actively involved in the decision-making process. Your success depends on whether you are on track to achieve your goals. You are not competing with anyone in the journey.
First, you create goals and then select investment options that will help you achieve your goals.
Everyone's situation is different when it comes to personal finance and goal-based investing. Hence, you need to identify your goals and accordingly invest to achieve them. Your financial goals must be specific, measurable, and time-oriented. You can identify your investment goals using the below criteria:
The majority of your investments must fulfil these three categories of goals.
If you also wonder why you should prefer goal-based investing over traditional investing, then worry not.
Here are some clear advantages that make it worth considering:
In short, goal-based investing doesn’t just grow your wealth. It helps you stay calm, confident, and in control of your financial future.
Once you know your goals, you have to look for the best investment option to help you achieve your goals. Every investment option has a risk associated with it, and you must understand it. Below are some of the best investment options. You can invest in them depending on your goals:
| Short-Term Goals | Long-Term Goals | Need-Based Goals |
|---|---|---|
| - Bank & post office fixed deposits | - Equity mutual funds | - Super savers deposits |
| - Recurring deposits | - Equity Linked Savings Scheme (ELSS) | - Liquid mutual funds |
| - Debt mutual funds | - Unit Linked Insurance Plans (ULIPs) | - Term insurance |
| - Liquid mutual funds | - Guaranteed Saving Plans | - Health insurance |
| - Public Provident Fund (PPF) | - Accidental insurance | |
| - National Pension Scheme (NPS) | ||
| - Direct stocks & bonds |
Taxation is a crucial factor when choosing an investment option. Higher taxes can eat into your returns, lowering your net gain. For example, let’s say you earn ₹5 lakh in interest from a bank fixed deposit in a financial year. This interest is fully taxable as per your income slab. If you fall under the 30% tax bracket, you’ll pay ₹1.5 lakh in tax, leaving you with only ₹3.5 lakh in hand. Meanwhile, some investment options like tax-free bonds or certain long-term insurance policies can help you reduce your tax burden and increase your net returns.
Always check the tax rules for any product you choose and plan accordingly.
Using just one budgeting app can increase your savings success by up to 70%, simply by keeping your spending visible.
Source: Forbes
Identifying all your financial needs gives you a clear picture of where you stand today and where you want to go tomorrow. Goal-based investing helps you answer crucial questions like why to invest, how much to invest, and where to invest, turning your dreams into a practical plan. More importantly, it gives your money a purpose and keeps you committed for the long run. When you stay invested, you maximize your wealth through the power of compounding and cushion yourself from emotional mistakes.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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