Meeting Your life Goals

To popularise the concept of goal-based investing, Money Today, in collaboration with Birla Sun Life Asset Management Company and Life Insurance Corporation of India (as its insurance partner), is organising 'investor awareness initiatives' in several cities. The first two sessions were held in Bangalore (on January 18) and Chennai (January 20) to educate people about the importance of financial planning.

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In Bangalore, the speakers were K.S. Rao, Head - Investor Education & Distribution Development, Birla Sun Life Asset Management Company, M. Jagannath, Senior Divisional Manager, Life Insurance Corporation of India, and Shyam Sunder, Managing Director at Peak Alpha, a wealth management company.

In Chennai, the speakers were Mohammed Aamir Sulaiman, Assistant Vice President, Investor Education and Distribution Development, Birla Sun Life Asset Management Company, R. Doraiswamy, Regional Manager (Pension and Group Schemes) of Southern Zone of Life Insurance Corporation of India and Babu Krishnamoorthy, Chief Sherpa at Finsherpa Investment Services, a wealth management company. Both the sessions were moderated by Teena Jain Kaushal, Senior Associate Editor, Money Today.

The sessions started with a discussion on goal-based investing and answered questions like - why is it important to identify one's goals and work towards achieving those? The speakers stressed that once you have established your goals, the choice of investing in a product should be based on your investment objectives, risk appetite and liquidity requirement. But we Indians have been guilty of shying away from investing in financial assets and instead preferring physical assets such as gold and real estate. But experts cautioned people against this and said a good portfolio should be diversified and have all major components ranging from equities and debt to insurance. They also talked about investing in financial assets, especially after demonetisation, when it is expected that the government will further tighten rules for investing in gold and real estate.

The experts discussed how mutual funds help investors in financial planning and enlightened the audience about the different types of funds ranging from equity, debt and balanced to equity-linked savings schemes. They also discussed how an investor can match regular investments in mutual funds with life goals.

"I always use the term DIP. D is delayed gratification, I is impact of inflation and P is power of compounding. Always look at the longer term of 15 to 30 years to achieve your long-term goals," said Rao.

The importance of systematic investment plans, or SIPs, was also discussed, considering how difficult it is to time the market. Experts recommended monthly SIP as it gives the benefit of rupee cost averaging. Even if you have a lump sum, you can invest through systematic transfer plans offered by mutual funds.

"Consider the mutual fund as a mutual friend. When you do so, the fund will help you in accomplishing your goals. Mutual funds have different schemes to fulfil your every need from stability to growth," said Sulaiman. For example, he added, for emergency needs there are ultra short term funds and liquid funds. For goals that are coming up in 10 years, one can opt for hybrid funds. For retirement one can go for equity funds (if the tenure is longer).

However, investing regularly and systematically is not enough. One calamity can wipe off your life-time savings if you don't have adequate insurance to back your finances. Insurance is, therefore, a critical part of financial planning. It is always good to have adequate cover to ensure that your plan stays on track and you are able to achieve your goals, both short term and long term.

Also, changing life situations call for regular revision of how much cover you should have. For instance, responsibilities of a married person are not similar to those of an unmarried person. They both have different requirements and should buy risk cover in tune with their liabilities.

"One can augment the cover by buying a term plan. Each year, as liabilities increase, you can increase the cover size," said Jagannath.

Term plans are the cheapest form of life insurance and offer the maximum cover. There are also investment-cum-savings plans such as traditional and unit-linked plans.

"As you grow, your own financial status changes. So, you have policies which also grow as your life stage changes," said Doraiswamy. He explained that insurance gives protection against loss and when you have a liability you need to have certain protection against it.

In the end, smart investing is not about putting all your eggs in one basket. It is about growth through diversification and informed decision-making - when one asset class loses steam, you need to be ahead of the curve to quickly reposition yourself and gain from another asset class doing relatively better.