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How to choose funds at different life stages
With change in your life-stages your needs undergo a significant change too. Thinking about the future systematically and planning for your goals & the possibility of uncertain events before they occur can help you live a financially secure life. While on the other hand, lack of effective long-term financial planning can result in financial distress and failure.
A long-term financial plan must be flexible to account for different life stages, the specific needs at each life stage and the uncertainty of events inherent to them. There are some obvious stages in your life – employment, buying a house, marriage, bringing up children, and retirement – that can trigger changes in your financial plan. There may even be speed bumps such as job loss that might require careful planning.
Mutual funds are an efficient tool for planning for different life stage needs since they provide exposure to different asset classes like equity, debt, commodities etc. In addition, they offer professional expertise, diversification and liquidity.
We start from your first step towards financial freedom when you are young and single, and go right up to retirement. We tell you how to choose funds at different life stages and the financial approach you should adopt to meet their needs.
Young and Single - In the initial years of your earning life, you may have a relatively lower level of accountability and responsibility. You may have short-term needs like saving for higher education. Remaining focused on savings and setting a money pattern early is essential to long-term financial security and management. People in this age group usually prefer to invest in equity since they have a higher appetite for risk. You can invest a higher portion of your savings in equity schemes while the funds required for contingency could be in debt and liquid schemes.
Married - Once you are married, your family depends on you for financial support. This is a phase where expenses are high. Moreover, there is an immediate need to plan for the future. As liabilities increase, so does the need to convert savings into a sizable corpus. A financial plan with a combination of investments and insurance is essential. At this stage, you can invest allocate investments equally between equity and debt schemes while the contingency savings could be parked in liquid schemes.
Married with Children - This is a stage when you may have the responsibility of children as well as elderly parents. At this stage, it is advisable to opt for plans that offer periodic returns to be used for a child's education or marriage. To balance risk and return, you can consider balanced schemes that invest in a mix of asset classes.
Nearing Retirement - This is the consolidation stage – accomplishing a relaxed lifestyle and thinking about managing your sunshine years. With 15 or more years of retirement life ahead of you, your main concerns depend on how your financial plans have panned out. If you are not comfortable with risky investments, consider money market/liquid schemes and fixed income schemes to beat market volatility.
Post-Retirement - This is the time to indulge in hobbies or travel, enjoy with your family and prepare for transferring your wealth. Your investments have to be in low-risk avenues as this capital will support you for the rest of your life.
You need to be cautious while earmarking funds to various fund categories because all have different risk profiles and optimal allocation is essential to balance risks and returns. The solution to achieving your goals for tomorrow is creating a plan that starts today. This may mean making personal preferences, setting priorities, and recognizing how to achieve your future goals.
It is never too late to begin investing in mutual funds. However, as an investor, you must take into account the implications that different schemes have in different stages of life. At each life-stage, you must analyse the situation, revisit your goals and rework your finances to suit your life-stage circumstances.
All this requires meticulous planning, which you may find hard to handle on your own. It is ideal to consult a financial expert to work out a plan tailored to your needs.
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
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