How mutual funds can help fulfill your long-term goals

Updated: July 17, 2019 6:55:44 AM

From your kid’s education to buying your dream house to building your nest egg, investing in mutual funds can help to finance all your financial goals

mutual fund, long term goal, mutual fund investment, education fund, marriage, vacation, deam homeSo, here’s the math – if you begin a SIP of Rs 6,456, you will be able to garner an amount of Rs 5 lakh in 3-5 years, assuming a average return of 10-11 %.

By Gautam Kalia

You earn, you save and then spend it to meet each and every need at home. From your kid’s education to buying your dream house to building your nest egg, investing in mutual funds can help to finance all your financial goals.

Children’s education fund
You can start investing to fund your child’s education right from the time your little one starts talking. Assuming your tiny-tot will march to school in 3-5 years, you can start investing in aggressive hybrid mutual funds that park 60% of your money in high-return equities and the rest in debt mutual funds. If you have a higher appetite for risk, you can invest your money in diversified mutual funds that invest fully in equity. Over a five-year period, these fund categories have given returns of 9-10% and 10-11%, respectively. So, here’s the math – if you begin a SIP of Rs 6,456, you will be able to garner an amount of Rs 5 lakh in 3-5 years, assuming a average return of 10-11 %.

Investment for marriage
For your child’s wedding is at least 20 years away, you can start investing in a mix of stable, large-cap mutual funds and relatively riskier mid-cap/ small-cap mutual funds. For a three-day wedding that costs Rs 20 lakh on average, here’s how you can foot a bill with MFs—for major expenses such as venue, décor and gold, you can invest in large-cap mutual funds right away. Adjusting for inflation of 6% and assuming a return of 12%, you need to just start a SIP of Rs 6,400, whereby you would be able raise a decent kitty of around Rs 65 lakh in 20 years.

Funding vacation
For vacation, you could opt for liquid mutual funds that allow you to redeem money easily. For instance, if a two-week trip to Europe costs Rs 2.5 lakh now, here’s how you can pack your bags easily in two years. Starting a SIP of Rs 6,386 in equity-oriented mutual funds could end up with a corpus of Rs 1.68 lakh in two years, at a return of 10%. For the more immediate expenses such as tickets and visa, you could begin a parallel SIP of  Rs 6,500 to gather funds of Rs 1.12 lakh by the time you are ready to fly.

Buying your deam home
Invetsment in mutual funds can created a kitty for ownpayment and also loan repayment later. For a Rs 1 crore apartment, you could fund the downpayment of up to Rs 25 lakh with a SIP of Rs 40,000 in aggressive hybrid mutual funds or diversified equity MFs that could help you amass a kitty of Rs 33 lakh in less than seven years. Later, to pay off your home loan early, you need to start a SIP that amounts to 10-15% of your loan EMI for at least 15-20 years. This will help you turn debt-free much before the loan tenure ends.

Creating nest egg
The grey years are far away, but that’s the best part for you. Start building your retirement kitty early so that you can stretch your legs later. For a goal that is nearly 30-40 years away, you can choose high-risk high-return diversified equity mutual funds (multi-cap mutual funds) that have offered 10-year returns of 13-14%. To build an inflation-adjusted amount of Rs 10 crore in 40 years, all you need is to invest Rs 8,656 every month now.

The writer is head, Investment Solutions, Sharekhan by BNP Paribas

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.