A RECENT development in the mutual fund space has been the concentration by mutual funds on providing solutions for investors. Here, the fund tries to ensure that there is an achievement of the goals of individual or the family by providing various funds that can be used for this purpose. This is a different approach that is being adopted by the mutual funds for the purpose of connecting with the investor.
While considering this situation there are a few things that the investor needs to know to evaluate the options in front of them.
Financial planning approach: One of the first points to understand for the investor is that the goal-oriented approach is exactly what is undertaken when the process of financial planning is adopted. Under the financial planning approach the starting point is to consider the financial position of the investor and then setting the different goals.
The goals have to be achieved over a period of time and there are various ways and routes in which planning is undertaken. The important thing for investors is that they concentrate on the goals and formulate a plan that will help in attaining these goals over a period of time.
Asset classes: Just as an individual will look towards different asset classes like equity, debt and gold for achieving their goals, these mutual fund offerings also follow the same approach. Usually the goals would require the usage of multiple asset classes and hence they will form the possible investment route for various funds that are launched under this.
The main thing to consider here is the allocation that will be given to different asset classes.
Different risk:
The other feature of the goal-oriented approach of mutual funds that are launched is that they will provide various investment options for the investor.
These options will meet the differing risk criteria that are faced by the investor and hence they can adopt the route that matches with their risk taking needs.
In some cases the choice can be simple like conservative, moderate and aggressive while some funds might offer an additional choice in the form of ultra conservative or ultra aggressive. The presence of a higher choice is not necessarily a good thing because this can make the decision making process difficult.
Own approach:
The main question that the investor should ask is whether they should adopt one of these funds for the purpose of their requirements or should they follow their own approach. If the investor is already using the financial planning route where they are setting their own goals and then making use of various investment alternatives to achieve these goals then they need not go in for specific funds that try and achieve the same objective.
This is important because of the fact that it would lead to a situation where there is a duplication of the effort that is taking place. If an approach is suited to requirement and this is working fine then they should stick to it and ensure that they continue with it.
Even when they have adopted financial planning on their own it is likely that they will be using different mutual funds as part of the process.
