Planning is essential for achieving our dreams and aspirations. Aspirations are dynamic and keep changing over different stages of life. As students, academic excellence, for some, professional qualification and finally getting the dream job are the most important aspirations. During our working years, career progression, home ownership, children’s education and marriage are the most important priorities. Finally, as we near retirement, we hope to achieve financial independence and lifestyle sustenance. These goals will not be met magically - you need to plan for each of these goals.
The challenge for the average salaried person is that, while we have multiple goals in different stages of life, the funds required to achieve them comes from a single source – our regular monthly savings left after meeting our burgeoning expenses. Do not count too much on windfall gains because they are fairly rare. What makes the challenge tougher is the ugly nine letter word, inflation.
Costs of many items in our day to day use have increased 5 to 7 times in the last 20 years. Imagine what your cost of living will be when you retire and how much you need to save to sustain your lifestyle post retirement! Parents want their children to have the best of education. Higher education, especially professional qualification, is one of the most inflationary items in India. The fee of the two business management program in IIM Ahmedabad was around Rs 4 Lakhs in 2007 – it is now around Rs 20 Lakhs, five-fold increase in the last 10 years.
How to meet multiple financial goals in an inflationary environment?
Adequate regular savings is absolutely necessary, but it is not sufficient to keep pace to inflation. You need to put your money to work for you – this is known as investing. Further, you need to put your money to work for a long period of time – longer you make your money work, more will be the money you can make. So you need to commit early, have a plan, be disciplined and intelligent about financial / investment decisions.
How does money work for you? When you invest your money, you get returns or profits. You do not take out your profits, but let it remain invested; profits invested will earn more profits. Over a long period of time, interest earned on interest or profit earned on profits, will be several times more than the amount you invested - in investment parlance, this is known as the power of compounding. If you start early, keep investing regularly from your monthly savings and remain disciplined over a long investment time-frame, the power of compounding can work wonders for you.
Why making better financial decision is wise
Systematic Investment Plans
Mutual fund systematic investment plan (SIP) helps you harness the enormous power of compounding over a long investment horizon from your regular monthly savings. You do not have to wait to save a large sum of money to invest – simply start with your regular monthly savings. Assuming a 15% rate of return, an SIP of just Rs 3000 per month can grow to a corpus of more than Rs 2 Crores in 30 years. The known principles of SIP namely, early start, regular investing and right investing are critical in meeting multiple priorities in different stages of life.
Financial Planning and Principal Mutual Fund Super SIP
Different life goals have different time-lines. Your need to accumulate adequate retirement nest egg, by the time you retire, say at 60; you need to save and invest accordingly for this goal. At the same, you need to plan to have sufficient funds for your children’s marriage, at a slightly earlier stage, say when you are in your early or mid 50s. Similarly, you will want to fund your children’s higher education before they get settle down and get married. You cannot postpone your retirement planning, till your children settle down - all your life’s goals should run on parallel tracks. Financial planning is therefore, very important if you want to achieve success in all your goals.
Many investors end up compromising one goal for the sake of another, e.g. retirement planning for the sake of children’s education or marriage, but this leaves them vulnerable on some front because all goals are important. In a comprehensive financial plan, you have separate savings and investment plans assigned to each of your defined goals. Financial planning should not be a theoretical exercise as some robo-advisors or even some certified financial planners make it out to be, because goals are aspiration but financial planning is always constrained by our capacity to save.
You may like to read – The importance of goals in investing
Effective financial planning should be dynamic because our capacity to save increases with our salary increments. In dynamic financial planning, you may invest more towards the nearer term goals, but as your income increases, you should save and invest more so that, you are able to fund your longer term goals adequately over time and cope with inflation as well. Increasing your SIP with rising income can also help you achieve goals faster – many of you may want to achieve financial independence in an accelerated time-frame and take an early retirement to pursue other interests.
A friend of mine, who wanted to invest in retirement planning, wanted my opinion when he was meeting with a financial advisor. My friend had estimated the retirement corpus he will need and asked the financial advisor, how much he needed to invest. The financial advisor, a life insurance agent, consulted his tables and suggested a premium amount for the pension plan he was recommending. The premium amount suggested by the advisor was beyond what my friend could afford, but unfortunately the plan which this advisor wanted to sell, was not flexible enough, either in terms of increasing the investment amounts over time or in terms of the nature of investment. I realized then that, flexibility should be an important characteristic of financial product for financial planning purposes.
Did you know what are probable retirement planning myths
To know more watch the video -
Risk diversification should be another essential feature of an effective financial plan. Different asset classes have different risk profiles, and even within an asset class, different asset segments have differing risk characteristics. Different investors have different risk capacities depending on their financial situations and stage of life.
Liquidity should be another important consideration in risk diversification because exigencies or uncertainties can cause a situation where we need immediate access to liquidity, without substantially impacting our long term goals. An effective financial plan, should provide for adequate risk diversification.
Principal Mutual Fund Super SIP combines different aspects of an effective and dynamic financial plan in a single plan, which offers both flexibility and convenience at the same time. The seven features of Principal Mutual Fund Super SIP namely, iName, Booster, 3-in-1, iChoose, Pause, My Date and Perpetual, helps you meet multiple goals, cope with inflation and at the same time, it provides you both flexibility and convenience. We will discuss each of these features in our next section.
Features Principal Super SIP
iName (Name your investments): We had discussed earlier that, tagging investment plans to different goals help us stay committed on each goal, without compromising other goals. You can name your SIP after your loved ones & life goals to build a “Dil Ka Rishta”. You can track the progress of your goals through account statements easily. Principal Mutual Fund’s Super SIP’s iName feature, is essentially Goal based investing. It helps you remain disciplined through your investment journey.
Booster (Make your life’s goals faster): The Booster feature of Super SIP automatically increases your SIP amount on periodic basis. Increasing SIP amounts helps you to fastrack your investment journey and helps you to meet your life goals faster. You can start with a small investment and as your income increases over time, you can increase your investment amount. The Booster feature provides flexibility and makes our financial planning dynamic. The Booster feature is very effective in encouraging young investors, who may have limited savings capacity, to start saving and investing for their long term goals.
3-in-1 (Convenience of choosing multiple schemes to diversify): With one form you can invest in 3 different schemes with a single cheque – it is an easy and convenient way to diversify your investment. As discussed earlier, risk diversification is an important aspect of an effective financial plan. It will provide stability to your portfolio and also ensure that your success in achieving your goals is not subject to the vagaries of capital markets.
iChoose (Freedom to select schemes & amount): The iChoose feature gives you the freedom to select Scheme & decide amount of your choice, as per your financial plan. You have the flexibility to plan based on your risk capacity.
Pause (Flexibility to take a break from your SIP): Principal Mutual Fund Super SIP allows you to take a break from your investment, anytime you want as per your financial situation. You can automatically resume SIP anytime after the pause period, without having to apply for fresh SIP registration and go through all the paper work associated with it.
My Dates (Choose your favorite SIP day): Unlike some mutual fund SIPs which have restricted SIP auto-debit dates in a month, Principal Mutual Fund Super SIP allows you to choose any date for your SIPs auto-debit (ECS). Choose any date for your SIPs based on your, lucky number, birth date or anniversary or any other date as per your own convenience.
Perpetual (No hassle to renew your SIP): The perpetual feature of Principal Mutual Fund Super SIP allows you to continue your investment till your lifetime – there is no end date. Keep investing until you wish to stop it, at any time you want. You can simply forget about the hassle of renewing SIP.
In this blog post, we discussed about the importance of financial planning and systematic investment plans in meeting multiple goals. Principle Mutual Fund’s Super SIP is a financial planning solution in it self, incorporating the features of an effective and dynamic financial plan. The plan features also offers a lot of convenience, which makes financial planning simple and easy to execute. To know more about Principal Mutual Fund Super SIP, please consult with your Principal Mutual Fund empanelled financial advisor or visit the Principal Mutual Fund office nearest to you.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.