Goal-based investing involves aligning your investment strategy with predefined goals, such as tax saving, children’s education or retirement planning.

In this blog, we delve into how mutual funds can help you achieve your financial goals.

What are Goal-based Mutual Funds?

Some mutual fund schemes are designed to meet specific financial goals like tax saving, children’s education, retirement planning, etc. These goal-based mutual fund schemes include:

1. Equity Linked Saving Schemes (ELSS)
2. Children’s Gift Funds
   
3. Retirement Funds

Equity Linked Savings Schemes (ELSS)

ELSS are mutual fund schemes that primarily invest in equity and have a minimum lock-in period of 3 years. These funds are eligible for tax deductions under Section 80C of the Income Tax Act of 1961 within the old tax regime.

Returns:

ELSS are actively managed mutual funds whose returns are linked to equity markets.

Taxability:

Capital Gains above 1 lakh are taxed at 10%.

Children’s Gift Funds

These are mutual fund schemes aimed at meeting children’s financial needs, such as higher education, marriage expenses, etc.

Where do these schemes invest in?

They have the option to invest in both equity & debt, hence treated as hybrid mutual funds.

Lock-in period:

Children’s funds come with a lock-in period of 5 years, or till the child turns 18 years, whichever is earlier.

Tax Deductions:

Investments into children’s funds are eligible for tax deductions of up to 1.5 lakh per year. The amount on maturity is taxed as per hybrid fund taxation rules. However, interest earned is exempt from taxes.

Returns:

The returns of children’s funds are linked to equity and debt markets.

Retirement Funds

Mutual fund schemes that invest with the sole purpose of creating a retirement corpus or providing a pension.

Where do these schemes invest in?

These mutual funds have the option to invest in both debt and equity markets, treated as hybrid mutual funds.

Lock-in period:

Retirement funds come with a lock-in of 5 years, or retirement age, whichever is earlier.

Returns:

The returns of retirement funds are linked to equity and debt markets.

Summing up

Knowing your life goals is crucial while creating your financial plan! This helps you build different pockets of savings for your short & long-term goals, such as buying a house, planning holidays, building a retirement corpus, etc, in a disciplined way.

Goal-based mutual funds schemes are one means that can help you in your journey. However, factors such as lock-in periods, tax implications, and risk tolerance must be taken into consideration before making investment decisions.

Disclaimer – This is for informational purposes only and not an investment advice.