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FSM in Media: Goal-Based Funds: A must have in your portfolio


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Mutual fund houses are currently focusing on goal-based funds for retail investors to promote financial planning and achieve long-term goals.

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FSM in Media: Goal-Based Funds: A must have in your portfolio

  1. 1. Goal-Based Funds: A must have in your portfolioAuthor: Dr. Renu Pothen, Research Manager, IndiaThis article was published in on Thursday, 09 June 2011Few investors get into a panic mode within six months of investing in mutual funds. Due to theirapprehensions, they ask experts whether they should hold or sell their investments. This is a bitsurprising, considering the fact that mutual fund investments shouldn’t be treated as ‘daytrading instruments’ and should be held for a long time horizon to achieve the much desiredfinancial goals. Therefore, goal-based schemes make sense as investors will stay in thesemutual fund plans for a stipulated period till their goals are achieved and will not press thepanic button when markets turn volatile.Suitable for Retail InvestorGoal-Based Funds are very similar to the products launched by insurance companies and now,mutual fund houses are also slowly bringing similar products for the retail segment. Theseproducts definitely help in financial planning and promote long-term investments. In the case ofreturn-based funds, an investor will normally start an SIP for a 10 year period and then if hesees consistent underperformance for a period of 3 years, he exits the fund. Thereby, the entirepurpose of investment is lost.On the other hand, since goal-based funds are launched exclusively for achieving certain goalslike child education, marriage, etc., the investor would hold them till the goal is achieved.Furthermore, the fund manager can appropriately design the portfolio to suit the nature of thegoals. This is unlike a normal situation wherein the investor will have to design a suitableportfolio by himself/herself or with the help of a financial advisor. In such a scenario, theinvestor has to keep a track of the performance of the portfolio every 2-3 years. As a result, theshort-term volatility of the markets will make the investor vulnerable to either book profitsprematurely when markets are on an upward trajectory or make a sudden exit when themarket trends are range-bound.Composition of Goal Based FundsGoal –based funds are similar to balanced funds as they allocate their portfolio between equityand debt components depending on the goals to be achieved. For e.g., the allocation to debt
  2. 2. will be in the range of 60% to 100% in a normal retirement plan while, the equity componentwill be ~ 40%. “UTI Retirement Benefit Pension” was the first goal-based plan in the mutualfund industry, launched in 1994. This was followed by a series of children’s plans and one moreretirement scheme from Franklin Templeton Asset Management. After a gap of 7 years, fundhouses are once again showing interest in launching these products, as can be seen from thetwo new schemes launched in 2011 namely, Fidelity India Children’s Plan and Peerless MF ChildPlan. There are more funds in the pipeline - Tata Retirement Fund, IDFC Retirement Fund andICICI Prudential Lakshya Fund.Performance of Goal Based FundsHDFC Children’s Gift –Investment Plan has delivered a return of 15.80% over a 10 year timehorizon which is at par with the balanced category average of 15.85% during the same period.But, there are some funds in the balanced category which have given a return of more than20% during a 10 year period like HDFC Prudence, DSP Balanced Fund, etc. Most of the investorswait for an opportunity to book profits and hence, miss out on the benefits of compounding.However, this is not the case with goal-based funds as the investor stays for a long time periodand reaps the benefit of long-term investing even if the returns are less than those delivered bya good performing diversified /balanced fund.ConclusionWe are of the view that investors should look at goal-based funds as this investment producthelps them align mutual fund investments to a particular goal and also, brings in discipline intotheir investment pattern. However, these funds should be selected on the basis of theirperformance, pedigree of the fund houses, the fund manager’s previous ability in dabbling withdifferent market scenarios and most importantly the investors should be comfortable with thekind of asset allocation chosen to achieve a particular goal. Although these funds are meant fora longer time span, it doesn’t mean that the investor should forget about the fund until the endof investment horizon. But, one should keep a track of how these funds are performing withoutlosing sleep over the short-term fluctuations.We have always advised investors to be patient with their mutual fund investments, however,the moment the markets starts behaving randomly, all this seems to fall on deaf ears. Withmore discipline and goal based investing in mutual funds, investors will be rewarded for theirpatience.
  3. 3. Powered by Launched in 2000, is one of the largest online distributors of mutual funds in South East Asia, with regional presence in Singapore, Hong Kong, Malaysia, and now, India. is the online mutual fund information and transaction site for self-directed investors and is part of iFAST Financial India Private Limited. It is a single point destination for investing in Mutual Funds with Free account opening, Easy transacting, Zero transaction and maintenance fees, Research articles, Recommended Funds & Portfolios, Fund Manager Interviews, FSM School carrying basic articles/videos for novice investors and more! iFAST Financial India Private Limited is an AMFI registered mutual fund distributor (ARN – 67218). Visit to know more about the parent company.DISCLAIMERiFAST and/or its content and research team’s licensed representatives may own or have positions in themutual funds of any of the Asset Management Company mentioned or referred to in the article, and may fromtime to time add or dispose of, or be materially interested in any such. This article is not to be construed as anoffer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision shouldbe taken without first viewing a mutual funds offer document/scheme additional information/schemeinformation document. Any advice herein is made on a general basis and does not take into account thespecific investment objectives of the specific person or group of persons. Investors should seek forprofessional investment, tax, and legal advice before making an investment or any other decision. Pastperformance and any forecast is not necessarily indicative of the future or likely performance of the mutualfund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed hereinare subject to change without notice.