Best laid plans


Investing systematically in equity-oriented mutual funds can help you realise your financial dreams

We all have our dreams. An actor dreams of winning an Oscar. A singer dreams of a Grammy. Someone wants to buy a house. Someone else wants to live comfortably after retirement. Another person wants to send her child abroad for higher studies. Millennials dream of buying phones or going on exotic holidays. Almost all people dream of their wellbeing.

But, just having dreams is like trying to hit the target blindfolded. We need to work to turn our dreams into reality. All achievers in various fields have laboured to realise their dreams.

We can get one step closer to our dreams by maintaining financial discipline. Quantifying our dreams in numbers and targets translates them into financial goals. When we embark on our journey to achieve them, the first thing we need to know is the cost at the time of fulfilment of those goals. Say, Rs 5,00,000 for making the downpayment on a house after five years, or Rs 5 crore as retirement corpus after 10 years.

Once we have set our financial goals, and the time limit to achieve them, we need to choose the investment products that will help in achieving the targets. While selecting a product, the most important aspect we should consider is the return, post inflation and tax. Inflation reduces the purchasing power of the capital and taxes reduce the overall return of the products. These two eroding factors make compounding of money very challenging.

Equity-oriented mutual funds are the best financial asset class for aiding compounding of money in the long run. Ideally, for goals that are some years away, one needs to invest in equity-oriented mutual funds to get a diversified portfolio, which helps reduce risk as well.

Here are some goal-oriented schemes that bring in discipline in investment patterns.


Planning for one’s sunset years is the most common goal one would have. The aim would be to retire with a corpus and generate adequate income from it, which would ideally be equal to your pre-retirement income and helps one maintain their standard of living. If one needs to plan for retirement, starting early is very important.


We do the best we can for our children. We like them to have a future that is better and brighter than the present. But expenses on education and marriage are not only dependent on inflation, but changing aspirations as well. If it costs Rs 10 lakh to provide good quality education to one’s child today, the same will cost Rs 32 lakh after 15 years, assuming an inflation of 8 per cent per annum. And, if the child wants to attend a college abroad, the fee requirements would be vastly higher than anticipated.

Mutual funds provide various options to investors, depending on their age and goals that range from conservative (predominant investment in debt) to aggressive (predominant investment in equities). Investors in their twenties or thirties, or those who have longterm goals like children’s education, may consider investing in aggressive options, as the longterm investment horizon augurs well for equity investment. Similarly, investors who have short-term goals or are in their pre-retirement phase may consider investing in conservative options, as it helps decrease the risk.


If the goal is to buy a car or to make the downpayment on a house, equity-oriented mutual funds can be an ideal option, as they tend to outperform other asset classes in the long term.

A conservative investor can invest in large-cap funds that invest in well-known, reputable companies with strong fundamentals. Those not looking to invest a lump-sum amount can opt for systematic investment plans, as they help in rupee cost averaging and help beat volatility. Investments in equity-oriented mutual funds are tax efficient, as dividends received and longterm capital gains are exempt from tax.


Investors looking for regular income to meet specific needs like post-retirement expenses can opt for systematic withdrawal plans, through which they can receive cash flows as per their need in a tax-efficient manner.

Mutual funds as an investment product cater to all kinds of investors—conservative and aggressive, short-term and long-term; salaried and high net worth individuals, and so on. They are also tax efficient and tend to provide higher real returns.

Basu is senior vice president and head, products and marketing, HDFC Asset Management Co Ltd.

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