Everyone has financial objectives like purchasing a home, funding their child’s study abroad plan, retirement corpus or even going for a vacation. All of these events require financial spend which may not be possible at once. But if you plan your investments you can build such a required corpus. Such a process of investing to help build funds for a future goal is known as goal-based investing. Read this blog to learn more about goal based investing and how can Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) plan goal-based investing to realize their financial goals.
What is Goal Based Investing?
Goal-based investing is a strategic approach to wealth management where the main focus is on achieving specific life goals rather than just maximizing portfolio returns or performing exponentially in the market. For example, if a parent wishes to set money aside for their child’s schooling, they will estimate the cost in the future considering inflation, and make the right investments to get there. For long-term goals, this may involve a combination of fast-growth strategies and cautious short-term investments.
Goal-based investing keeps clients involved and motivated by matching investments to personal objectives like retirement or buying a house and helping them meet their financial goals for all investors including NRIs and OCIs. This personalized method aligns investment strategies with the specific objectives of each investor, ensuring that financial decisions are fit to meet defined goals like:
- Saving for Children’s Education: Investments have the objective to build up sufficient wealth to pay for education, taking into consideration living expenses, tuition, and other related expenses. This could include aggressive strategies to gradually increase the fund’s value or more careful choices to protect capital.
- Developing a Retirement Nest-Egg: This component focuses on building a consistent and dependable source of income for retirement. This could include a combination of early-stage investments focused on growth and later-stage investments that are more mindful and generate income as retirement gets near.
Also read: 𝗕𝗲𝘀𝘁 𝗠𝘂𝘁𝘂𝗮𝗹 𝗙𝘂𝗻𝗱𝘀 for NRI in India 2024
How does Goal Based Investment work?
Goal-based investing does not compare investment success to market averages; instead, it focuses on achieving individual life goals. An investor who will be retiring in a year, for instance, cannot afford to lose even 10% of their wealth. Outperforming the market by 10 percentage points doesn’t provide much comfort if the stock market drops by 30% and their portfolio drops by 20%. They have to concentrate on saving money so they can afford to retire.
This approach prioritizes clients’ needs and goals. A more aggressive investing strategy would be employed for the grandchildren’s college education and a more conservative one would be used if the client’s goals are to save for both a coming retirement and both. For example, 10% of retirement assets could be invested in stocks and 90% in fixed-income securities, whereas 50% of the education fund could be divided equally between fixed-income and equities.
The advantages of goal-based investing are:
- Goal-based investing helps clients stay committed to their life goals by letting them see and track their progress.
- Goal-based investing reduces impulsive decisions and overreactions to market changes.
Also read: Best SIP to Invest in 2024 – Top 10 SIP Mutual Fund Plans for NRIs/OCIs
What is the Objective of Investing Based on Goals?
- Identify Accurate Amounts for Financial Goals: Using goal-based investing, you can figure out exactly how much you need to reach your objectives while accounting for inflation. For example, if you spend Rs. 10 lakh now for higher education and add 8% inflation to that amount over the next ten years, the total cost will come to approximately Rs. 21.6 lakh.
- Pick the Right Investment Products: Knowing your goal amount and the time allows you to choose a suitable investment. Short-term goals may use debt funds or fixed deposits, medium-term goals can mix equity and debt, and long-term goals can focus on equity funds.
- Rebalance Your Portfolio: Setting goals for your investments allows you to look into them and adjust them as necessary. For example, to preserve your gains as you get closer to retirement, you can switch from equity to fixed-income products.
- Avoid Debt Traps: You making clear goals and making investments toward them, you lower your chance of taking out loans and getting into debt by making sure you have the money when you need it.
- Maintain Financial Discipline: Having specific goals for your investments helps you stay focused and disciplined, which lowers the chance that you’ll quit investing because of other distractions. This aids in better adjusting to market swings and maintaining your course toward your objectives.
Also read: How understanding the Rule of 8-4-3 can turn your Rs 30,000 monthly into Rs 1.5 cr?
How can NRIs/OCIs do Goal Based Investing?
For starting goal-based investing, NRIs and OCIs have to decide on their financial objectives, which may include purchasing a home, funding their children’s education, or retiring. To account for inflation, they must calculate the amount required for each target. Based on each goal’s time horizon and risk tolerance, they can then select appropriate investment solutions. Debt funds or fixed deposits could be their choice for short-term objectives. Property or equity funds can be taken into consideration for long-term objectives. Their financial objectives can be met by staying on track by regularly reviewing and modifying the portfolio to ensure alignment with their goals. There are many goal based investing app India you can use to start your investments. Download the SBNRI app to start investing based on your goals and build the required corpus to realize your dreams.
Also read: Best NRI Investments in India: Top 10 Investment Options for NRIs/OCIs in India 2024
Wrapping up
A strategic approach to investing known as “goal-based investing” focuses a higher priority on reaching particular life objectives than just managing profits. It includes setting financial goals, projecting the necessary sums while accounting for inflation, and choosing appropriate assets depending on each goal’s period and risk tolerance. This approach lessens premature choices, keeps investors out of financial traps, and helps them stick to their goals. Goal-based investing for NRIs and OCIs entails establishing particular goals, selecting suitable investments, and constantly evaluating the portfolio. By making sure that investments are in line with life goals, this customized approach helps investors in achieving financial success.
Also read: What is the 15x15x15 Rule In Mutual Funds for NRIs?
Start Goal Based Investment with SBNRI Today
NRIs can now download the SBNRI App and choose to invest in different NRI mutual fund schemes in India with ease. You can also get detailed investment advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
FAQs
What is goal-based investing?
Goal-based investing helps clients focus on achieving specific life goals, like saving for children’s education or building a retirement fund, instead of just aiming for the highest returns or beating the market.
How can NRIs invest in India?
As an NRI, you can invest in index, gold, or debt ETFs like Nifty 50, NIFTY Bank, or Sensex. However, you cannot invest in currency and commodity ETFs in India. Contact your bank, AMC, or broker for more details.
What is the goal of investing?
Safety, income, and capital gains are the main goals of investing, but there are other important factors to consider as well.
What is goal-based financial planning in India?
Understanding goal planning includes setting clear goals like:
- Saving for a house.
- Funding education.
- Building a retirement fund.
Each goal’s timeline, risk tolerance, and required returns are considered to create a tailored investment portfolio.
