I have been regularly investing in four- and five-star rated funds through an SIP. I married last year and I am in the process of setting my financial goals. My current portfolio includes equity mutual funds (34.50 per cent), debt (3.50 per cent), direct equity (11 per cent) and bank deposits (51 per cent). My parents are not dependent on me; I live in my ancestral house. Do I need any rebalancing? Can you give me some advice on setting financial goals?
-KT Saravanabhava
Welcome to the world of prudent investors. As far as investing for the future goes, there are always early bird rewards to be earned.
First we will address your need to rebalance. As you have few dependents you can think of enhancing your exposure to the more risky, equity instruments so as to garner better returns. At the same time bear in mind the short-term repercussions of equity investing. Before committing an amount to equity, be sure of your investment horizon. As a thumb rule, invest only what you are unlikely to need over the next three to five years.
As far as setting financial goals are concerned it is a dynamic and on going process. You could have started this even before your marriage. This exercise can be quite time consuming but its rewards far outweigh this slight inconvenience. We would advise you to conduct this as a family exercise so that you know the aspirations and demands from your family as well. The trickiest aspect of financial planning requires an individual to make broad estimates. For instance, if you intend having one or more children you will need to assess the future cost of education, marriage, health care and other costs that come along with the upbringing of a child.
In order to break down these goals you can broadly divide your financial objectives as short- and long-term goals. Short-term goals are ideally met in a period of 12-18 months. Setting money aside on a monthly basis takes away the burden of providing for these. Furthermore, such a habit insulates you from the need for taking on unnecessary debt in the form of personal loans, heavy credit card bills and the like. In order to help you categorise your goals we have enlisted some common examples.
Short-Term: Purchase of consumer durables (washing machines, refrigerators etc), down payment or purchase of a car, annual vacations, planning an anniversary party.
Long-Term: Accumulating funds for a down payment on a house, child planning including aspects of education and other social responsibilities. Apart from this, retirement planning forms the integral part of any financial plan.
Once the goal setting activity is conducted, your next step would be to zero in on suitable investment avenues or financial instruments for these. The most critical aspect here is the time horizon or gestation period for each goal as well as safety of capital. In your case, retirement planning is an extremely long-term goal and hence you can look at a balanced approach here. The Public Provident Fund (PPF) may not provide an adequate return to beat inflation so in the early days you could look at a high equity exposure here.
Similarly, your short term goals can be addressed by putting money aside each month in a recurring deposit account or alternatively you could look at ultra short-term debt funds.
We wish you luck in your planning exercise.
This article was originally published on November 06, 2007.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
