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How to map your mutual funds to your investment goals?

Posted on 25 Jun 2023
Author: Sayan Sircar

Tags: Portfolio Construction ; Set Goals

7 mins read
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This article shows how investors can map their various investments, like mutual funds, FDs, NPS, stocks etc., to different goals.

How to map your mutual funds to your investment goals?

Providing structure to your portfolio

This article continues our previous post How to clean up your mutual fund portfolio?. The plan here is to help investors map their existing investments in mutual funds, shares, FD, real estate (plots/houses etc.) and gold, among others, to their goals.

Alice in Wonderland teaches us why goal-setting is important

Goal setting helps you understand the priorities of your life, set the future of you and your family, understand the various money-related challenges that come and be best prepared for the future financially. Goals give direction and momentum to your financial life:

direction: if you know why you need it then you know what to invest for. Creating wealth is not a goal. But investing for the purpose of sending your child to Harvard in 15 years is a goal
momentum: this allows you to build investing discipline and track progress along the compounding journey. Without a goal, it is likely that the money will be spent on frivolous things just because “money is available”.

You will hurt your chances of creating wealth via compounding if goals are not set.

Why mapping investments is essential?

You need to answer three main questions regarding your portfolio, which will be helpful once you complete the investment-to-goal mapping.

Are you invested in the right assets?

Investors need to be sure that their current investments suit what they are trying to achieve with their money. A few examples are:

too much risk in portfolios since their equity investment are mostly tilted to mid and small-cap stocks and funds
excessive allocation to some assets due to familiarity (like FD) or overconfidence (like equity mutual funds)
paying too much taxes by having FDs at higher tax slabs instead of debt mutual funds
not understanding risk by chasing returns in fixed-income products like NCDs or P2P lending

Are you investing enough?

Compounding formula

A common mistake many investors make is that they assume that investing in risky products like mutual funds will create enough wealth via compounding. We have already shown that wealth-creation via SIP in mutual funds does not happen as most of us think it does. The only way out is to follow goal-based investing like here:

But to reach that stage, you need to understand the purpose of each of your investments.

Do you need to change your investments?

Investors often club every investment under the garb of “wealth creation”. Much of this happens if you have

an agent selling you a product like a mutual fund or ULIP without caring about the suitability of that product for your goals. For example, you get a call from your friendly family fund advisor that a new NFO has come, and all you need to do is start a new ₹5,000/month SIP
you have invested in an investment unsuitable for the purpose. A good example is investing in a plot of land for a kid’s college education. Can you sell that plot at the desired price before admission fees are due?

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Also read
How to Buy Your Dream Home Without Any Savings: A Step-by-Step Guide

How to map your investments to goals?

Mapping investments to goals

We have given a theoretical example in our previous article on How should couples invest for their goals?, which we show here:

Goal name	AMC / Bank	Investor	Folio / Account	Type
Car	ABC Mutual fund	Spouse 1	1111	Money Market
House	PQR Mutual fund	Spouse 2	2222	Liquid
Vacations	EFG Bank	Spouse 1	3333	Recurring deposit
Child College	XYZ Mutual fund	Spouse 1	4444	Equity Index, Money Market
Child College	PQR Mutual fund	Spouse 2	5555	Equity Index, Gilt
Retirement	PQR Mutual fund	Spouse 1	6666	Gilt, Equity Index
Retirement	XYZ Mutual fund	Spouse 2	7777	Gilt, Equity Index

Having multiple funds from the same AMC for a single goal (e.g. Equity Index and Money Market funds from XYZ Mutual Fund for Child goal) allows for one-click rebalancing via switches. The above approach also allows investors to easily diversify across AMCs: Do you need multiple mutual funds to keep your money safe?.

Once the mapping is complete, the next step would be to feed the assets into a goal-based investing tool to understand the next steps to take:

The playlist to complete the mapping of your goals and use our goal-based investing tool is here:

A worked out example for using this framework for an investor is here: Where to invest your monthly income if you spend only 45% a month?. Additional examples are in our case studies linked below.

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