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3 steps to create wealth through goal-based investing: Sampath Reddy

Most investors invest without any goal-based planning. When you get a regular or a lump sum cash inflow, majority of investors have a tendency of improper planning, regarding the amount to spend and save.

December 17, 2017 / 03:40 PM IST

Sampath Reddy

Most investors invest without any goal-based planning. When you get a regular or a lump sum cash inflow, majority of investors have a tendency of improper planning, regarding the amount to spend and save.

Moreover, they are also not aware of specifics like asset class, time horizon, individual risk profile and risk associated with each of these asset classes in order to meet one’s different financial needs.

While saving is good, not attaching a goal to investing may not set the savings/portfolio of assets in the best direction. It is akin to boarding a train without knowing your destination.

Hence a goal-based savings approach helps the investor to channelize his savings in an appropriate way.


Every individual has several life goals - both long-term and short-term. Investing in a planned manner to achieve these goals is called goal-based investing.

Planning for Goals

Step 1: Identifying the goals for which you wish to invest and the time frame you are looking at to achieve that goal.

Step 2: Know how much corpus it would need to achieve that goal. One must find out how much that goal costs today and adding a reasonable amount of inflation for the time period in which you wish to achieve that goal will give a fair idea about the corpus required to accomplish that goal.

Step 3: Understand how much you can save or invest for that goal based on the risk appetite of the investor and the expected returns from the investment. You could then use the Regular Investment Products or go for a lump-sum investment or a combination of both to achieve that goal.


As can be seen in the above table, for any given 15-year period in the last 27 years (FY90 – FY17), if the investment horizon is long-term, the probability of negative returns reduce significantly. Lowest CAGR return for any 15 years investment horizon is still reasonable at 6.5 percent.

On an average, the equity market has given a return of 11 percent to 12 percent over a long-term horizon, which is superior to fixed deposits and debt funds returns.

Investing in equities is risky, but “not investing” is riskier:

An individual stock may fall as much as 90 percent, but in a well-diversified portfolio, the risk is reduced significantly. Investing at regular intervals in a well-diversified portfolio further reduces the risk of market timing and stock specific volatility.

Usually, the equity market has beaten inflation over a long time horizon. Hence, investing in a well-diversified portfolio product at regular intervals will help to achieve the long-term goal, hence we believe, it is riskier to not to invest in equities.

If one has decided to invest in equities, the next question that comes is when to invest. People often ask questions when is the best time to invest in the market when it comes to equity investing. It is difficult to time the market. Investors Make Money by Being in the Market, Not By Timing the Market.

For example, if one would have invested regularly in equity-oriented ULIP funds even during the peak point of Lehman crisis for 5 to 10 years, the investor would have still made reasonable returns beating inflation. Hence, it is advisable to not bother about market levels and keep investing at regular intervals to take care of market volatility.

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves” ~Peter Lynch.

To sum it up, goal-based financial planning helps you to invest in a systematic and disciplined manner to achieve your goals. It helps you remain focused and unaffected by the short-term volatility in the equity markets.

In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.

An investor can look to invest in equity, debt and liquid funds depending upon risk profile and time horizon of the investor. The investor must consider an equity investment in order to achieve long-term goals.

(Disclaimer: The author is Chief Investment Officer, Bajaj Allianz Life Insurance. The views and investment tips expressed by investment expert on Moneycontrol are his own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.)
first published: Dec 17, 2017 03:40 pm

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