Financial planning for the medium term is essential in accomplishing significant milestones in one’s life such as buying a home, paying for your child’s education, or paying off major loans. With proper planning and the right financial tools, securing your future while managing your money becomes effortless. This article will look at some tools and methods to accomplish your medium-term goals.
What Are Medium-Term Goals?
As most obligations, medium term goals generally range between 1 to 5 years may have have goals including but not limited to:
- Owning a home
- Putting away savings
- Buying an expensive automobile
- Paying off home loans or student loans
- Putting money aside for children’s education or child-rearing
- Establishing an emergency fund
- Starting a new business or expanding career opportunities
Strategies and Financial Instruments to Achieve Medium-Term Goals
In order to accomplish the above listed goals, below are the strategies and financial instruments that can be used:
“As moderate risk investments targeting government bonds, debt funds are the perfect option for those seeking a steady level of return with little to no risk. Thus, they are a perfect fit for midterm goals.”
Equity-Oriented Hybrid Funds
Equity Oriented Hybrid Funds (EOHF) allocate between 65%-70% in equity and 30% in debt. EOHF is well suited for investors seeking diversification in debt and equity. Investment coverage is across FMCG, finance, healthcare and real estate. Some of the top players in the market are Mirae Asset, Canara, and Kotak.
Debt-Oriented Balanced Funds
In the case of debt oriented balanced funds, these funds are notoriously known to allocate more resources to debt than equity at 65% and 35%, respectively. Debt oriented balanced funds are seen as less risky which branch off into more secure investments with government and gold bonds. This type of investment is best suited for conservative investors who seek a more secure form of investment that provides some returns.
Monthly Income Plans
MIPs strike a balance by offering regular returns while taking a relatively lower equity exposure. These funds beat debt funds in returns but they’re also less risky than equity funds. Thus, they are ideal for investing when there is a need to access funds regularly.
Equity-Related Funds
Funds associated with equities are subdivided into the cap spectrum and with major direct investment, covering large mid small cap and more. The risks for these types of funds are higher because they are one of the top performers with returns of 18% after the average of 5-7 years. Some of the many asset management companies that deal in equity related funds are Axis, ICICI, and SBI.
Exchange-Traded Funds (ETFs) or Index Funds
These funds are designed to passively manage investments in an attainable set of goals. They also copy the performance of a particular market index. For example, an index fund that tracks an NSE would rise by 10% if the market index rises by 10%. The funds are ideal for those investors who target the medium-term goals.
Direct Stock Investing
Investing directly in stocks could be a good medium-term strategy for more knowledgeable investors as long as they are willing to do the requisite research. Doing proper research or seeking an advisor’s expertise can make this option rewarding.
Perks of a Well-Balanced Medium-Term Financial Planning
Setting a good medium-term goals can be very advantageous due to the following points listed
Enhanced Management of Risks: Investing in the hybrid and debt funds helps in reducing the risk while achieving reasonable returns.
Simplicity of Goals: Simpler goals such as home purchases or debt repayment give motivation.
Financial Stability: Committing to regular investment and savings helps with better cash management.
Wealth creation: With time, significant life events can be accompanied by large amounts of wealth as a result of medium-term investments.
Conclusion
Select an investment strategy that correlates with your expected returns and risk tolerance to help you achieve your mid-term financial objectives. In meeting your goals whether through debt funds, hybrid funds, or equity investments, starting early and using the correct financial tools will allow you to have a respectable future. Always remain focused, monitor the progress you are making, and adapt your goals to meet your set objectives.
