Every Investment should have a purpose.

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First question that will come to your mind is ‘WHY?’ I am saving money and investing it, is that not enough? Many people invest without any planning and end up spending the returns generated out of investment on not-so-important things.

Suppose Alex has started a monthly Recurring Deposit (RD) of Rs.5000 a year ago, as it’s the extra amount he left with at the end of every month. Today after 12 months his RD got matured and he receives Rs.64000 including interest. There is also a festive sale today on Amazon where one can get iPhone 11 (128 GB) at Rs.55000. Alex, who just got the big amount because of RD maturity and didn’t know what to do with it, gets lured by the iPhone offer and decide to buy the same. He places an order on Amazon, though he had a good smartphone working perfectly fine.

Similarly Manish received a big chunk of money as his PPF account gets matured after 15 years. At the same time, his neighbour bought a luxury car which left Manish envious. So Manish also decides to buy a new car and use the amount got from PPF maturity.

Buying luxury goods is everyone’s individual choice! But what we can see in above two cases is that both Alex and Manish didn’t have purpose for their investment returns. Thus, they end up spending the same on unnecessary things based on impulsive emotions

What is Investment with Purpose?

Investment with purpose or which is usually called as Goal-based investment is not-so-new investment strategy where more emphasis is given on fulfilment of the desired goal rather than percentage of investment return.

It’s very simple to understand, but hardly people follow it. Many people either don’t have set financial goals in their life. Or if they do have, they don’t link an investment product to it. It’s very important to follow this strategy, otherwise you might be next Alex or Manish.

How to DO it?

First of all, you should have a financial Goal, which is measurable, realistic and time-bound. Second, link proper investment product to it based upon the time period in which you want to achieve the goal.

Let’s take an example. Sourabh, 23, just started a new job in a software firm. He always wanted to buy his dream bike which costs around Rs.1.2 lakhs. He is not in hurry and can wait for 1 year to buy the same. So he now have a measurable, realistic and time-bound goal i.e. to accumulate Rs.1.2 lakhs within a period of 1 year. If he decides to invest in stock market to attain that goal, then he might end up losing the capital also, as stock markets can be volatile within short durations. But if he set up a normal RD for a year to attain the same goal, then he will definitely have enough money to buy that bike. Though RD is giving lower returns than stock markets, he is able to achieve his goal within stipulated time period with RD.

Manoj, 30, want to plan for his retirement which is due in next 28 years. He wants to have sum Rs.1 crore at the time of his retirement. For such long-duration goal, Manoj can invest in equity and later can shift to less-riskier fixed-income products as he come close to the retirement age.

One should quantify every major life event (like marriage, children, retirement, etc.), set a realistic time period to attend that quantified amount and link a proper investment product to attain the same. Certified financial planners will definitely help you in doing that.

So, Happy Goal-based Investing!

Regards,

StockTradingF&O team

Disclaimer: This information is only for educational purposes. Please consult your own financial advisor before investing.

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