Are you overwhelmed by the decisions you are required to take to self-manage your goal-based investments? In this article, we shall discuss how you can use simple products such as exchange-traded funds (ETFs) and bank deposits to invest for your life goals.

A goal-based portfolio ought to have equity and bond investments. Your exposure to equity investments should preferably be in an ETF on a broad-market index (NSE 500 Index, for instance) for two reasons. One, it is easier to choose a passive fund than an active fund and ETFs have lower fees than index funds. And two, a broad-market index gives you exposure to nearly the entire equity market (NSE 500 Index covers about 96 per cent of the market).

Platform review: What is ETF Junction, how is it different

If you cannot find a suitable ETF tracking a broad-market index, your next preference should be an ETF tracking a large-cap index — the NSE 50 Index, for instance. You should follow two rules to set up a systematic investment plan (SIP) on the ETF. One, the tenure of the SIP should match the time horizon for your life goal. And two, the SIP amount should be debited on the day your monthly income is credited into your bank account. This follows a principle that you invest first and spend the rest. Your bond investments should be in a recurring deposit with the tenor of the deposit matching the time horizon for the life goal.

The above principle requires you to take only two investment decisions for each life goal. One, you must choose an ETF that trades actively on the chosen index (broad-market or large-cap). And two, you must weigh the attractiveness of the interest rate on the recurring deposit against the fear about the safety of your investment. Small wonder that most individuals prefer large banks.

The only continual decision you are required to make is to manage your ETF investments through the time horizon for a life goal. Suppose you expect 12 per cent annual return on your equity investment.

Every year, if your equity investment returns more than 12 per cent, sell enough units to take out to returns above 12 per cent and invest that money in regular fixed deposits.

This amount can be used to buy units in the years when your equity investment earns lower than the expected return. This process improves your chances to accumulate the required amount at the end of the time horizon for a life goal.

(The author offers training programmes for individuals for managing their personal investments)