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Achieving Short Term Financial Goals with the Right Strategy

I’m always surprised by how often people wrongly plan for their short-term financial goals. 

I recently met someone who invested in the Quant Small-Cap Fund. Great for the long-term, I encouraged, until they mentioned it was for buying a car within a year! I couldn’t help but sigh. 

Out of curiosity, I talked to a bunch of other people regarding their short-term financial goals. Turned out, many of them are investing in high-risk instruments for their short-term goals. 

If there’s one thing my financial journey has taught me- it’s that every goal needs a timeline. And every timeline has a suitable investment option.

So in this blog, I’m particularly focusing on smart investment planning for short term goals. We’ll talk about how to plan your short-term goals, what options to choose, and how to optimize your portfolio. 

Let’s get started…

Any goal you aim to achieve within 3 years is a short term financial goal. It could range from a couple of months to a couple of years. 

For example,

GoalTimeline
New phone1 month
Going on a vacation2 to 3 months
Buying a car3 to 6 months
Home renovation1 year
Child’s education fees1.5 to 2 years
Down Pay for a new home3 years

To optimize it further, assign priorities to your goals. For instance, your child’s education fees are more important than home renovation. Or maybe buying a car can wait until you renovate your home. It’s up to you.

Since these goals have a shorter timeline, your investments need to be liquid and low-risk. Which brings us to the next, rather important, point…

As I talk to investors from different age groups every day, I have noticed a common misconception. They think equity mutual funds offer quick growth. This thought process comes from the bull run they noticed a couple of years ago. They’ve probably experienced some quick wins.

However, equity mutual funds can be highly volatile and risky for short term goals. The time horizon is simply too short for these funds to recover from potential losses. 

Most people are unaware that every mutual fund category has an ideal time horizon. It’s always mentioned in the fund’s factsheet. 

Here’s an example of the ICICI Prudential Bluechip Fund. As you can see in the highlighted segment, the indicative investment horizon is 5 years and above. 

Investment horizon for ICICI Prudential Bluechip fund- financial goals

If you can’t find the ideal time horizon on a factsheet, here’s a general rule:

Goal TimelineMutual Fund Category
0 to 3 yearsDebt Mutual Funds / Hybrid Funds
3 to 5 yearsLarge Cap Mutual Funds
5 to 7 yearsMid Cap Mutual Funds
7+ YearsSmall Cap Funds

For short-term goals, you should ideally explore debt funds or hybrid funds; NOT pure equity funds. 

Debt funds specifically have categories based on duration profiles ranging between 1 day to 7+ years. Common underlying assets in debt funds are Treasury Bills, government bonds, corporate bonds, certificates of deposit, etc. These assets are not as volatile as stocks in equity funds. They offer predictable annual returns and are less risky. Most importantly, these funds have the potential to deliver superior returns compared to savings accounts or FDs. 

Hybrid funds are a combination of equity, debt, gold, and international equity. These funds are slightly riskier than debt funds but less riskier than pure equity funds. Hybrid funds can cater to your short-term goal with a 3-year timeline. 

Every investment product carries a certain amount of risk. You have to choose the ones that ensure capital protection. Pure equity funds can be extremely risky over a short horizon. You might end up losing money. Debt funds, on the other hand, carry low risk on capital. 

Liquidity is extremely important as you’ll be withdrawing money in a short timeline. While mutual funds don’t have a lock-in period, they certainly have an ideal investment horizon. As shown above, pure equity funds usually demand 5+ years to recover from potential losses. Plus, it is ideal to stay invested for a longer horizon to benefit from compounding. 

Debt funds are clear winners when it comes to liquidity. The ideal investment horizon is usually much smaller for debt funds based on the category. 

You cannot predict the outcome of equity mutual funds, especially in the short term. You might look at the past performance and think, this seems promising. However, past performance does not guarantee future returns. It all depends on the market conditions. The chances of the market performing in your favor in the short horizon are very slim. 

On the flip side, debt funds at least deliver predictable returns. It depends on the interest rate cycle. So, the interest rate might affect returns on debt funds, but it also holds true for FDs, savings accounts, etc.  In fact, debt funds often outperform FDs, and Savings accounts for a similar horizon. 

Having said that, let’s explore some mutual funds for your short-term goals.

Liquid funds invest in securities maturing between 7 to 91 days, which means, you can withdraw your money anytime you need. 

Here are some of the examples of liquid funds:

1. Bandhan Liquid Fund

2. Franklin India Liquid Fund

3. Quant Liquid Fund

Tip: Liquid funds are also suitable for investing a lumpsum amount for a few months and starting an STP (Systematic Transfer Plan) afterward into an equity fund of your choice. Read more about STP here

Ultra short-duration funds invest in instruments that mature within 3 to 6 months. These are moderate to low-risk funds that often deliver better returns than liquid funds. 

Below are some examples of ultra-short duration funds you can explore:

1. Aditya BSL Savings Fund

2. Bandhan Ultra Short Term Fund

3. Mirae Asset Ultra Short Duration Fund

Low duration funds hold underlying instruments with 6 to 12 months of maturity period. With relatively lower risk, these funds deliver decent returns over a year.  

Examples of the low duration funds:

1. ICICI Prudential Savings Fund

2. Axis Treasury Advantage Fund

⁠3. UTI Low Duration Fund

Money market funds are ideal for your financial goals with 1 to 1.5 years of horizon. These funds invest in securities maturing within a year.

Some examples of money market funds:

1. Nippon India Money Market Fund

2. Axis Money Market Fund

3. TATA Money Market Fund

As mentioned above, hybrid funds are ideal for short-term goals with a 3-year horizon. This category includes Balanced Advantage Funds, Multi-Asset Funds, Dynamic Asset Allocation Funds, Equity Savings Funds, etc. The funds invest in stocks, bonds, gold, and international equity, depending on the fund’s subcategory and objectives. 

Unlike pure equity, these funds are moderately risky and cater to your short to medium term goals. And the allocation in various asset classes offers instant diversification. 

Whenever I mention debt funds to investors, I get two kinds of responses. One- they’re not aware of these funds. Two- they’re aware of the debt funds taxation and aren’t convinced. 

Yes, taxation is absolutely an important factor in your financial goals. You should calculate post-tax returns for all your investments.

But, since we’re talking about debt funds for your short term goals, let’s clear all your doubts.

As per the taxation rule set in April 2023, both short and long term gains on debt funds are taxed as per the investor’s tax slab. Ever since this new rule, investors began turning their backs on debt funds.

I get it. Previous taxation rules were much better but that’s not the case anymore. So then why do debt funds still make sense?

For these reasons:

1. Interest earned on your savings account, FDs are also taxed as per your tax slab. 

2. Debt funds have the potential to deliver 1 to 2% extra returns, which means, you earn better post-tax returns.

3. Plus, if you keep your money idle in your savings account, you might end up spending it on something unplanned. On the other hand, redemption from debt funds takes up to 24 hours to land in your account. So debt fund withdrawals are not as swift as the savings account, protecting your capital from your spending habits.

4. And, you can invest for the timeline suitable for you. 

Read more about FD vs Debt Funds

Here’s how you should plan your short-term goals:

Note down all the financial goals you want to achieve in a year or two. Assign priorities and timelines to each of them. This gives you a clear picture to invest accordingly. 

Many investors skip this step, but knowing your risk appetite is important. Take the risk profiling quiz to understand your risk tolerance. This step helps you plan your short, medium, and long term goals.

Invest as per the timeline of your goals. Equity funds can cater to your long term goals. Debt and hybrid funds are suitable for your short-term goals. 

Your current investments also need to be evaluated against your new investments. That way, you can optimize your entire portfolio and generate superior post-tax returns. Regular portfolio review also helps you realign your investments as per your ever-changing financial situation, goals, and risk appetite. 

Short-term financial goals are often mismanaged. People either invest in the wrong instruments or don’t bother investing at all. However, short-term goals are equally important. With the right mutual fund categories, you can streamline your finances. 

Don’t make the mistake of investing in high-risk avenues for the short term. Instead of chasing quick wins, focus on liquidity, capital protection, and risk-adjusted returns. Assign priorities to your goals, assess the timeline, and invest wisely. 

If you need help planning your financial goals, get in touch with VNN Wealth, a widely trusted wealth management firm in Pune. Our experts will review your portfolio, and assist you in choosing the funds and investing. Explore our products for more information. 

Riddhi Shewani- Co Founder, VNN Wealth

Written by Riddhi Shewani

Co-Founder, VNN Wealth

Know more about Riddhi

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Blogs Personal Finance

The Dangers of Emotional Investing and How to Avoid Them

The biggest obstacle between you and your financial goals is- You! Your emotional investing is causing more harm to your portfolio than you realize.

In an ever-changing financial landscape, it’s easy to let emotions influence your decision. You’re a human after all. 

But… Your fear, greed, and overconfidence, are clouding your judgment, pushing you towards making an irrational decision. 

Strong portfolios and successful investments require discipline and emotional stability. And if a small part of you feels you’ve allowed your emotions to overpower your decisions, then this blog is for you.

Keep reading as we’ll explore how emotions can impact investment and simple strategies to keep them in check. 

We let our emotions control the situation in almost everything in our lives. Instead of relying on logic or data, we let our feelings make the decision for us. We do the same with investments. 

Does any of the following sound familiar?

Fear: In fear of losses, you end up selling your investments during a market dip. 

Greed: Taking unnecessary risk by chasing the returns during a market rally. 

Overconfidence: Trying to time the market, leads to impulse decisions. 

FOMO: Fear of missing out on the market trends. 

Regret: Irrational decisions in the hope of covering the previous losses.

Here are some of the examples that may also sound familiar:

When the market crashed during COVID-19, a lot of investors cashed out their portfolios in fear of losses. However, the market rallied up soon after. The Nifty 50 went up by 124% between April 2020 to Oct 2021. 

Similarly, in 2008, Sensex experienced its biggest crash in January and continued to decline for the rest of the year. Investors sold significant portions of their investments to avoid further loss. Sensex recovery took more than a year. During this crisis, patient investors survived but emotional investors caused a huge dent in their portfolio. 

Market crashes are temporary and markets always eventually recover. During these tough times, your actions can make or break your portfolio.  

People often let several psychological biases alter their investments. These biases arise from the need to stay in control of your money. We’ve noticed one or the other of the following psychological traps clouding the decisions of the investors we meet.

The most common trap that people fall into is following the crowd. From buying a car to careers and investments, people tend to follow others. 

For example, during the dot-com bubble, everybody invested in tech stocks and lost significant wealth when the bubble burst in 2000. 

The backbone of this herd mentality is fear of missing out. People want to jump on the bandwagon with others, follow the same path. However, what works for others may or may not work for them.

Everyone’s financial situation and investment goals are different. Therefore, as comforting as it appears, following others while investing does more harm than good.

Studies show that investors tend to feel the pain of losses more deeply compared to the joy of gains. The fear of losses prompts premature selling during the market dips. 

We’ve met plenty of investors who, despite a defined time horizon for their investments, get restless with temporary loss.

What these investors fail to understand is, that market corrections aren’t going to last forever. As the economy grows, the markets eventually follow. Therefore, market volatility can be mitigated by time.

As you can see in the graph above, every market crash was eventually recovered. You need to be patient. Your investments deserve time to recover from the losses. Don’t let the temporary loss get in the way of your long-term growth plan. 

People always try to make sense of their decisions by selective information. They want to believe in what they want. 

For example, someone who is convinced that real estate is the best investment option will only focus on success stories. They’ll only pay attention to rising real estate prices in certain areas. Or positive experiences of their friends. Their upbringing and their family’s beliefs also play a role. These people only see what they want to see and completely overlook risks like market downturns, maintenance costs, or long periods with no rental income.

They try to seek information that aligns with their beliefs. This bias leads to misinformed decisions. 

You’re trying to build wealth to make your financial future secure. You should trust relevant data to make an informed decision. 

Disciplined investment is the key. Having clear financial goals will help you stay focused, even during market uncertainties. 

Here’s what you need to do:

Step 1: Define your goals. For example, buying a car next year. Moving into a new house in two years. Or retiring early. Assign a tentative amount to each goal that you’ll need to generate.

Step 2: Evaluate your financial situation. Get all your statements and note down your monthly expenses, EMIs, funds you’re keeping for emergencies, salary increments, etc. This will help you set aside an amount you can invest every month.

Step 3: Take a risk profiling quiz to understand your investment personality on the spectrum of aggressive to conservative. Many investors like to believe (or pretend) they’re aggressive investors. However, the kind of risk you’re willing to take and the risk you can actually take is different. So answer honestly and the quiz will give you the suitable allocation of equity, debt, and other instruments. For example👇

Risk profiling quiz

Step 4: Evaluate your investment portfolio. Review your current holdings and realign them as per your risk profile. 

Asset allocation is crucial to maintaining a diverse portfolio and balancing risk. Equity, debt, and gold each experience a different cycle every year. However, they complement each other. 

Take a look at the table below. The performance of each asset class varied every year. 

Asset allocation

So if you are worried about your portfolio crashing, don’t invest heavily in one asset class. That’ll lead to high-concentration risk. Instead, distribute your money across different instruments to balance the risk. That way, you won’t be tempted to make any impulse decisions.

Let’s take a simple example. Baking a cake requires a specific amount of time to cook completely. If you take it out of the oven before the timer finishes, you’ll be greeted by an undercooked cake.

Similarly, when you invest money in an instrument, it needs a specific time to deliver returns. Premature withdrawal will cause a loss. 

So, when you define goals, you must assign a timeline for each. For example, buying a house in two years.

Since your time horizon is only two years, investing in small-cap or mid-cap funds would be silly. These funds need 5+ years to deliver optimal returns. Instead, you can invest in debt funds with a suitable horizon. On the other hand, your time horizon would be longer to achieve your retirement goals. In that case, you should definitely invest in high-risk funds.

Because…risk is not defined by a fund category but by a time horizon. Each mutual fund category has a pre-defined time to mitigate short-term volatility. 

GoalTimelineMutual Fund Category
Buying a car Within 3 to 6 monthsLow-Duration Debt Funds such as:
Kotak Low Duration Fund
Axis Treasury Advantage Fund
SBI Magnum Low Duration Fund
Moving into a new houseIn 3 yearsDynamic Bond Funds / Banking and PSU Funds / Hybrid Funds like Balanced Advantage Funds, Multi-Asset Funds:
ICICI Prudential Balanced Advantage Fund
Kotak Balanced Advantage Fund
Quant Multi Asset Fund
WeddingIn 3 to 5 yearsLarge Cap Funds such as:
Nippon India Large Cap Fund
ICICI Prudential Bluechip Fund
SBI Bluechip Fund
Children’s EducationWithin 5 to 7 yearsMid Cap Funds such as:
Quant Midcap Fund
Motilal Oswal Midcap Fund
HDFC Midcap Opportunities Fund
Retirement Planning7 Years and AboveSmall Cap Funds such as:
Nippon India Small Cap Fund
Quant Small Cap Fund
TATA small cap Fund

Important: The above table only illustrates time-based investments. However, you also need to consider other parameters such as your risk appetite, the fund’s rolling returns (consistency), and your overall investment portfolio. Choose funds that align with your objectives and contribute to the growth of your overall portfolio. 

Automation removes the temptation of timing the market. It helps you consistently invest toward your goals. You can set up an SIP (Systematic Investment Plan) for mutual funds of your choice. 

Here’s how disciplined consistent investment can compound over a period of time. Let’s say you aim to accumulate 1 crore for your child’s college education over the next 15 years. By consistently investing INR 20,000 per month in mutual funds, with an expected average annual return of 12%, you can reach this financial goal within 15 years.

SIP Calculator

You can play around with numbers using our SIP calculator to set a specific timeline for your financial goals. Automate your SIP installments and let the money compound on its own. 

A professional financial expert will objectively evaluate your investments. They will provide data-driven insights to strengthen your portfolio irrespective of the market conditions. 

A professional financial expert can:

Analyze your risk appetite and review your portfolio.

Assist you in choosing the right mutual funds. 

Ensure your portfolio’s risk aligns with your risk profile.

Help you identify redundant investments and ensure true diversification. 

Guide you through the market volatility.

So, even if you’re a savvy investor with market knowledge, an expert can shed light on the situation from a different angle. 

If you want to review your portfolio and discuss your investment strategy, book an appointment with us. We will assist you throughout. 

Emotional Investor Rahul often gets anxious about market uncertainties. He constantly monitors his portfolio and complains about poor returns. He ended up investing in multiple stocks due to a trend his friend was following and sold it at a loss when the stock price began declining. His patience runs out after every minor change in the market and he starts panic selling or impulse purchasing. He claims to be an aggressive investor but never bothers evaluating his actual risk appetite. 

In contrast, Pratiksha, a Rational Investor always focuses on a long-term picture. She invested in various asset classes for diversification and follows a strategy based on her risk appetite. While her portfolio also goes through ups and downs, she is not concerned. She keeps investing via SIP for a defined horizon and lets the money compound. She quarterly monitors her investments only to see where it is going and talks to an expert if she has any questions. 

Outcome? Pratiksha’s consistency and data-driven approach will outperform Rahul’s emotional investing. While Rahul might make quick gains sometimes, these wins are unpredictable. 

Therefore, always stick to an investment strategy catering to both short-term and long-term goals. 

Acknowledge your mistake: Start by accepting your mistake. Identify the situations where you let your emotions run wild. Moving forward, you can stop yourself from making the same mistake again.

Re-evaluate your portfolio: It’s never too late to fix any errors. Re-evaluate your portfolio with an expert- identify gaps, poor-performing assets, redundant investments, etc. Sell the assets that are consistently delivering poor returns. Reallocate your money to asset classes that’ll deliver returns ideal for your financial goals. 

Focus on consistency: Encourage yourself to focus on disciplined investment. Plan Systematic Investments via SIPs or STPs. That way, you will invest a small amount every month and benefit from compounding. 

Keep your emotions in check: If you feel stressed about your investments, try to have a long-term perspective. Some stress management techniques such as meditation, exercise, or hobbies can help you navigate your emotions. It’s easy to worry when the market is fluctuating. But, focus on what you’re trying to achieve with your investment so you won’t get side-tracked. 

Emotional investing can be detrimental to your long-term financial success. Fear, greed, ego, overconfidence- all these emotions push you in the wrong direction. Instead, unlock your emotional intelligence to make logical, goal-oriented investment decisions.

As Daniel Kahneman says in his book Thinking, Fast and Slow- emotional decisions can be impulsive whereas rational decisions require more thought. 

So, this is your sign to rethink your financial decisions. Make the right choice by creating a strategy for better returns. Have a long-term perspective than a short-term panic. Start making small changes today and you’ll notice the results in due time. 

Are you ready to give your investment portfolio another chance? 

1: Take a risk profiling quiz to determine your portfolio’s ideal asset allocation.

2: Review your portfolio and choose the right mutual funds.

3: Sign up or log in to start investing. Effortlessly automate your SIPs and STPs. 

If you’re interested in exploring wider investment instruments such as unlisted shares, AIFs, and PMS, reach out to us. VNN Wealth is a trusted wealth management firm in Pune with exclusive investment opportunities tailored to your financial objectives. 

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Blogs Personal Finance

Should You Invest in Solar Energy Stocks in India? 

The sun is shining bright on solar energy stocks in India.

The green energy sector is booming as India aims to achieve 500GW capacity of renewable energy by 2030. Investing in this sector is a promising opportunity for both seasoned investors and beginners. There are plenty of solar energy stocks to bring into your portfolio.

On 7th April 2021, The Union Cabinet approved the Production Linked Incentive (PLI) Scheme to boost the manufacturing of solar PV modules. The total of INR. 24,000 cr dedicated towards the sector aims to produce 39,600 MW capacity. India is set to create solar cities across the nation. The 1st solar city, ‘Sachi’, has already been launched in Madhya Pradesh in 2023. As the country marches ahead in this sector, many big solar panel manufacturers are raising INR. 5,800 cr this year. These funds will be used to establish 500 GW capacity by 2030. Along with Solar Panels, the manufacturers will also produce cells, wafers, and ingots under the PLI scheme.

The top three solar module manufacturers are:

1. Waree Energies
2. Vikram Solar
3. Premier Energies

All three of these companies are coming up with their IPO, out of which, Waree Energies and Vikram Solar are available for purchase in the unlisted market for allocation confirmation. To inquire about the Waree Energies share price and Vikram Solar share price, get in touch with VNN Wealth.

waree energies share price

Update: Waree Energies got listed on the stock market on Oct 28, 2024, at Rs. 2550, with a 70% premium over the issue price of 1503/share.

Waree Energies is playing a crucial role in expanding India’s renewable energy sector. The largest manufacturer of solar modules in India, Waree has rapidly boosted its capacity to 12GW in recent years. The company occupies about 50% of the market share in solar PV module export, surpassing Adani and Vikram Solar. In December 2023, Waree Energies filed a draft with SEBI to raise INR. 3,000 crore through an initial public offering. The funds will be used to further expand the capacity from 12 GW to 38 GW over the next five years. Buying unlisted shares of Waree Energies can guarantee allocation and significant growth over the years. (Please note that the unlisted shares are subject to availability.)

Read more about Waree Energies and other unlisted shares here.

vikram solar share price

Update: Vikram Solar has filed draft papers for the IPO with SEBI. The IPO will be a combination of a fresh issue of up to INR. 1,500 crore and an offer-for-sale (OFS) of up to 17.45 million equity shares.

Vikram Solar is another big player in the green energy sector. With 3.5GW capacity, it is among the largest exporters of solar PV modules. Additionally, the company provides engineering, procurement, and construction (EPC) services, as well as operations and maintenance. Vikram Solar’s 70% of the revenue comes from PV modules and about 20% revenue comes from EPC. In the previous year, the company also received approval from the government to set up 2.4GW of additional capacity under the PLI scheme. Currently, Vikram Solar is available to purchase in the unlisted market. The company has filed a draft with SEBI for an initial public offering (IPO). Vikram Solar IPO will offer a fresh issue of up to INR. 1,500 crores and an offer for sale of up to 5,000,000 equity shares.

premier energies share price

Update: Premier Energies got listed on the stock market on Sept 3rd, 2024 with 120% premium over the issue price of 450/share.

Premier Energies is one of the largest integrated solar cells and solar module manufacturers in India. With 29 years spent in the solar sector, the company now has an installed capacity of 2GW for integrated solar cells and 3.36 GW for solar module manufacturing. Premier Energies has filed the draft with SEBI to raise INR. 1,500 crore via initial public offering (IPO). The company will utilize INR. 1,168.74 to establish a 4 GW solar PV TOPCon cell and 4 GW solar PV TOPCon module manufacturing facility in Hyderabad. The remaining funds will go towards general corporate purposes. The company is also aiming to execute EPC projects, independent power production, and O&M services.

India’s solar energy sector is rapidly expanding with the PLI scheme in place. The government is taking the initiative to encourage growth in the capacity of renewable energy production. This is the right time to enter the sector by investing in solar energy stocks. It has the potential to deliver a significant return on your investment. Buying unlisted shares of Waree Energies or Vikram Solar will ensure allocation before the IPO. However, it is subject to availability. Get in touch with experts at VNN Wealth for the unlisted shares you wish to buy. Explore all unlisted shares here.

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