Create a medium for achieving financial goals through funds

Investing and You

Investing is not an easy process. However, if you have a good understanding of the basics, making investment-related decisions will be much easier. Plus, it can be quite rewarding. By investing systematically, becoming a successful investor will be achievable without much difficulty.
Investing is not an easy process. However, if you have a good understanding of the basics, making investment-related decisions will be much easier. Plus, it can be quite rewarding. By investing systematically, becoming a successful investor will be achievable without much difficulty.
First and foremost, understand your financial needs and goals properly. Ask yourself when you will need money and for what purpose. Write down your financial goals (such as children's wedding in 6 years or buying a house in 10 years). Also, calculate how much money you will need for these goals. This will help you determine the investment timeframe, whether you should invest for the short term, medium term, or long term. Investments should always be made according to a time horizon. For long-term goals like retirement and children's higher education, choose equity funds. Although you may see volatility in the short term, over the long term, they can provide returns according to your expectations. Similarly, for short-term goals, you should invest in money market or cash funds as they tend to be relatively stable.

Understand Your Risk Tolerance

Before making an investment decision, it is essential to assess your risk tolerance. Can you tolerate the volatility that may occur in investment values? Or do you prefer to choose investment avenues with lower fluctuations but also lower returns? Investing in equity comes with short-term volatility, but it doesn't necessarily mean losing sleep over it. However, it's also crucial that your investments provide enough returns to help you achieve your long-term financial goals.

How Much Return Do You Want?

The expected rate of return depends on your financial goals and their time horizon. Let's understand this through an example. If you want to retire at the age of 58 and aim to create a corpus of 20 lakhs, and you invest 5,000 rupees per month, then at the age of 34, you would need a return of 9.5 percent, while at the age of 48, you would need a return of 21.2 percent. As evident from the example, the longer you delay your investment, the higher return you'll need to achieve your goals. In other words, as the investment time horizon decreases, you may need to take on more risk to accomplish your objectives. Alternatively, if you are unwilling to take on more risk, you'll need to invest a larger amount per month.

Disciplined Investing is Essential

Systematic investment not only makes it easier for investors to earn returns from the equity market but is also an effective means. It reduces the risk of volatility.

What are the Criteria?

The criteria include the mutual fund company's track record/experience, stability of the investment team and investment process, consistent performance across various market cycles, transparency in service, performance compared to peer funds across different timeframes, and investment style or process that aligns with your risk-taking ability.

Investment Review

Before making investment decisions, consider how it affects your current asset allocation. As time passes, there are changes not only in your lifestyle but also in your income. It is essential to review based on factors like investment goals, risk tolerance, investment performance, etc., whether any changes are needed in investment decisions.
The author is the Managing Director and Chief Investment Officer of Franklin Templeton Asset Management (India).