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Defining Your Goals

Welcome to Module 7 of TradeSmart Course. This module talks about everything you need to know about picking a right mutual fund suitable to your goals, expected return and risk appetite. In this chapter, we shall discuss the first step involved in the process of picking a right mutual fund that is – defining your goals. In this chapter, we shall look into what we mean when we ask you to set your financial goals, why setting goals is important for you and how you can go about it. By the end of this chapter, you will be confident enough to take the first step towards picking a right mutual fund.


I met Ranjit 10 years after school in a cafe. He took science stream after school and is now working in the robotics field whereas I became a financial advisor. Off late, when investing became talk of the town, Ranjit felt left out because he had not begun his investing journey. He asked me about what should be the first step of the journey for someone who doesn’t know anything about the stock market.


The answer to that question depends on what the investor wants from his/her investment? Ranjit always wanted to buy a vacation house, a sea facing bungalow in Goa. That is where the first step towards beginning your financial goal is. Defining your goals.


I gave him an example of a teacher who taught us Geography in school. He has invested in the stock market without setting a right goal. Until 2020, he was in huge profit but never planned to exit from the investments. Later, when markets crashed, he sold his investments. Had he decided at what percentage he should book his profits, either he would have sold them long back in good profit or he would have waited until the markets recovered up to his target.


Ranjit shook his head in affirmation as he understood the concept of goal setting. Now that you have become aware of the importance of setting goals before picking the mutual fund, let us take a look at it in more detail through this chapter.]


Set your goals and make it happen


You must have heard, “Good planning is the halfway to success.” The same saying applies to financial planning and goal setting. When you make a plan and select the right mutual fund that suits your goals, you have done half of the task. After that, you just have to let your investment do the work.


Having a financial goal set before investing is important as it gives you a sense of purpose and mindful risk-reward. A vague investment approach can lead to abruptness leaving an investor perplexed about when to exit and book profits or when to shuffle the investments in order to reduce the risk.


Setting goals meaning, having a clear vision of how much return to expect within the time you set forth.

Why should you set a financial goal?

Let us look at some important aspects due to which setting a financial goal becomes a crucial step for you.


  • Keeps you aware of the path ahead: A road without a destination often makes one feel confused. It is important to know where you are heading and what you want to achieve. It helps you not only professionally but also personally.


  • Helps you save better: When a road to financial goal is set, it helps you calculate how much you need to save in order to invest in the mutual fund. Keeping in mind the benefits of compounding, a habit of saving money developed at a younger age is more beneficial for wealth creation.


  • Shapes your career better: When you know where you want to reach financially, you can make well informed decisions in your career. Whether to do a nine to five job with fixed income security or kickstart with a business opportunity you had in your mind for years, decision making becomes easier when a goal is set.


  • Keeps you focused: Whatever the goals you set for yourself, it will develop a sense of priority and the ritual of saving and investing becomes your preference. It helps you stay focused towards achieving those goals.


  • Creates a sense of attainment: Different goals take different time frames to fructify. Depending upon whether the goal is short, medium, or long term, one can feel a sense of achievement when the target is met. It keeps the optimism up throughout the course of your investment journey.


How to define your goals?

As we gulped down the last sip of our coffee, Ranjit asked me if there is a certain process to follow in defining the goal. To which I exclaimed, “Of course!” Let me take you through the steps in goal setting to pick the right mutual fund


  • Set the purpose: This is the first step in the process of defining your goals. The purpose for investment must be clear before you begin to invest your money. Your purpose could be any foreseeable task or event such as studying abroad, buying a car or a house, child’s marriage, saving for a secured retirement, etc.


  • Define the duration: When the purpose for investing is clear, you can set a period for which you need to invest. This brings us to the next important step in defining a financial goal. Some purposes might require a shorter time to achieve whereas others might require a longer period.


  • Plan for flexibility: Stock markets cannot be timed. It is not possible to know beforehand whether your goal will get achieved within a stipulated time frame or before or after that. Therefore, while setting goals you must also provide for any kind of variation from the original plan.

In nutshell

  • The two main aspects in goal setting are defining a purpose and a time frame within which you wish to achieve the said purpose.


  • Defining a financial goal is important because it gives you a better clarity about your financial path ahead, helps you save better and gives you a sense of achievement when your goals are met.


  • While planning your goals, you should not forget to add a flexibility factor to it since the economy and markets cannot be timed and it is always subject to some risks and uncertainties.


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