A SMART Way to Select the Best Mutual Funds for Your Goals

Just like a student needs to prepare and study well for the entire year to score good marks in the final examination, you as an individual need to plan and set your financial goals to ensure you fulfil your dreams. Setting goals is undoubtedly the first step towards achieving them.

Setting a financial goal gives you a purpose and roadmap to your envisioned goal. However, you cannot set goals without thoroughly analysing them. The goals you set must be Specific, Measurable, Achievable, Realistic, and Time-bound. So, in short, your financial goals should be S.M.A.R.T.

Make it a point that your financial goals should be extremely specific. You must specify for whom you are having the goal (yourself or your child), what do you want to achieve, the time in hand to achieve that goal, the purpose of the goal, the requirements and constraints, and so on. Any haziness around the goals can become an obstacle to achieving them.

Once you have set the goals, you should prioritise and classify them into short-term, medium-term, and long-term goals. For example, saving for a contingency fund could be a short-term goal, buying a car could be a medium-term goal, and retirement could be a long-term goal.

Financial goals, once constructed, are like a roadmap to achieving your objectives. Hence, after defining all your financial goals and prioritising them, you should not waste time and start investing towards achieving your goals. However, you must also chalk out an asset allocation plan before you start investing. Choosing suitable investment avenues is a crucial step in financial planning. The time in hand to achieve your goals and your risk appetite largely decide how your asset allocation would look like.

While doing the asset allocation, it is important to understand that risk and returns are the two sides of a coin. So, for every return you seek, there is a certain level of risk associated with it. Each asset class, such as equity, debt, real estate, and gold, or the category of scheme your choose comes with a certain level of risk reward.

As shown in the above pyramid, large cap funds are relatively stable and carry lower risk compared to their peers in the mid cap and small cap fund category, but at the same time sacrifice on the return potential. Similarly, fixed-income products and debt instruments carry low risk, whereas equity and equity-related instruments are at the higher end of the risk-return spectrum. Having said that, the high risk does not guarantee high returns. PersonalFN's SMART Fund Explorer can help you pick suitable funds to diversify your mutual fund investment.

"The essence of investment management is the management of risks, not the management of returns." - Benjamin Graham

Hence, you must avoid investing imprudently going by just returns, and should be mindful of the risk involved. While fixed-income products like bank fixed deposits carry low risk, it does not make sense to put all your money in such investment avenues for a very long term, as they might fail to generate inflation-beating returns. However, you can consider allocating a small portion of your investment to safer instruments to diversify your risk.

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Your different financial goals would require different time horizons and investment amounts; hence, no single strategy can be applied to achieve all your goals. Investing in carefully selected rewarding mutual funds can help you achieve your objectives. Wisely selected mutual funds can help you yield inflation-beating returns and create wealth in the long term.

Selecting the best-suited mutual fund schemes involves the analysis of several qualitative and quantitative factors. While the quantitative parameters include past performance of the scheme and risk-adjusted returns, some of the qualitative factors, among others include portfolio quality, fund management style, fund manager's experience, funds to fund manager ratio, portfolio ratios and concentration, turnover ratio, investment systems and process at the fund house, assets under management, and so on. Apart from the qualitative and quantitative factors, you also need to consider personal factors like your risk profile, time horizon, and investment objective. Similar to the different asset classes, each category of mutual fund has a distinct place on the risk-reward spectrum.

The Systematic Investment Plan (SIP) route of mutual fund investment, with its sheer power of compounding and rupee cost averaging, makes the best choice for novice as well as seasoned investors to build a corpus steadily and generate inflation-beating returns over time. You can accomplish your envisioned goals by simply creating an SIP towards each of them.

At PersonalFN, we understand that not everyone can have the expertise in choosing suitable mutual fund schemes towards their financial goals. Due to the lack of market knowledge and the struggle to deal with market volatility, many individuals even avoid investing in stocks and mutual funds.

But now, with the help of PersonalFN's SMART Fund Explorer, you can plan your mutual fund investments smartly to achieve your financial goals. All you need to do is state your S.M.A.R.T. financial goals (such as buying a house, child's education, retirement, etc.), determine a suitable time frame for achieving your goal (such as 5 years, 10 years, etc.), insert the amount you need in today's terms to achieve your goal, and the lump sum or SIP investment you can afford to make. Once you enter all the required details, click on "Show Me My SMART Investment Plan".

Considering the details entered, the SMART Fund Explorer will provide you with the expected return (%CAGR) and value of the investment at the target date (which is calculated considering a nominal inflation rate).

As you scroll down, you will see two mutual fund investment plans (Plan A and Plan B) offered by the SMART Fund Explorer. The plans specifically show the fund categories you should invest in, the asset allocation percentage, potential returns of each category, and weighted annual return contribution. You can choose any of the plans based on your risk profile.

Moreover, you can get instant access to the list of best-suitable mutual fund schemes as per your selected plan by signing up to PersonalFN's SMART Fund Explorer. The list of smartly selected and recommended mutual funds by our research team will serve as an opportunity to begin your mutual fund investment journey Smartly.

Warm Regards,
Ketki Jadhav
Content Writer