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Goal Driven Investing

Fund houses hope investors will bite the bait if the focus is on goal-oriented schemes…

It’s not easy for fund companies. Having run out of new equity themes or sectors, and with SEBI frowning on duplication of schemes, there is a dearth of ideas for new fund offers (NFOs). So, in this super competitive industry, one should not be too surprised at seeing a slew of goal-oriented schemes from fund houses. That’s the new buzz in the NFO circles.

By introducing goal oriented schemes, fund houses appear to be replicating the strategy followed by insurance companies. The main advantage of such products is that it strikes an emotional chord with investors and helps them relate to the product in a much easier fashion rather than a fund which gets categorized according to market cap, such as a mid- or multi-cap fund.

To be fair, goal driven investing helps investors think through their priorities, identify goals and keeps them focused on what is important, rather than attempting to time the market. But end of the day, you can achieve the same by allocating your money in various investments and fund schemes of your choice. Annual rebalancing of your assets can also be done to ensure that the closer you get to your goal, the more you lower the equity exposure.

An investment worth mentioning here is the New Pension Scheme (NPS). Over here, as the investor ages, exposure to equity tapers by a certain percentage every year and gets diverted to debt. Unfortunately, there is a tax liability to consider - the investment in NPS is only eligible for a tax deduction at the time of contribution. However, fund management charges in NPS are just 0.009 per cent, much lower than the charges of a mutual fund. On the flip side, mutual funds provide liquidity that the NPS does not.

So do remember, whichever way you plan to invest, the principles of investing stay constant. If you want to invest in equity, it must be for the long haul. As you approach your goal, hike up the debt exposure. Finally, look at the tax aspect as well as the returns when deciding where to invest.

Actively Management Funds
Peerless Mutual Fund Child Plan
Launched in March 2011
The allocation varies between equity (5-35%), debt (60-80%) and Gold ETFs (5-35%).
Fidelity India Children’s Plan
Launched in January 2011
The investment style of the plans range from aggressive to conservative. It is only the marriage plan that has the gold option for an asset class. The reason is obvious - it will provide a hedge against rising gold prices.
Tata Retirement Fund
Offer document filed with SEBI
The assets under these plans will be allocated based on the age of the investor. This fund offers an auto switch facility based on a pre-defined trigger, which is the age of the investor. It is available for the Progressive and Moderate plan. Under this facility, when a person reaches the age of 40, his investment will automatically move from a Progressive to Moderate plan. On reaching 60, it will move to the Conservative one.
The auto switch facility ensures that the corpus accumulated is invested in a more conservative manner so that capital erosion does not take place. But do note, a switch from one plan to another will be treated as a redemption and fresh purchase and will be liable for capital gains tax as well as Security Transaction Tax (STT).
For investors who do not wish to opt for the auto switch facility, they can stay or exit whenever they want to.

Fund of Funds (FoF)
There are two FoFs which follow the same goal-oriented style of investing. The fundamental difference being ICICI Prudential Lakshya restricts the investment universe only to the schemes of ICICI Prudential Mutual Fund. In the case of ING Optimix Financial Planning Fund, the universe includes schemes from 14 asset management companies (AMCs) and will not invest in any of the schemes from ING Mutual Fund.
ICICI Prudential Lakshya
Offer document filed with SEBI
This FoF has 10 plans of varying objectives such as child’s education and retirement. Each plan has a specific target date according to which the asset allocation is based. As the target date approaches, exposure to equity reduces while that to debt increases. At the time of maturity, the investor has the option to either switch units to ICICI Prudential Liquid Plan, switch to a subsequent plan or redeem the units.
ING Optimix Financial Planning Fund
Launched in May 2011
The fund offers four plans- Cautious, Conservative, Prudent and Aggressive with investments made in four asset classes. Being a FoF, the investment will take place in a fund which invests in those assets. Investors can opt for any plan depending on their financial goals and can also invest in more than one plan simultaneously.

The online solution
Franklin Templeton Mutual Fund recently launched the Family Solutions Planner. It is a software tool which helps investors formulate an investment plan.
The individual needs to fill up a questionnaire online which will ask for certain basic details and specific goals. Three funds, from the fund house, are then recommended in each portfolio based on the portfolio style. There are five such portfolios - ultra conservative, conservative, moderate, aggressive, highly aggressive.
Similarly, Kotak Mutual Fund has also introduced a financial tool called Personal Goal Planner. On taking various inputs and preferences from the investor, it will provide information on the amount of money that an investor needs to invest per month in order to achieve his goal.

ETF: Exchange Traded Fund / SEBI: Securities and Exchange Board of India