There have been many queries from individuals wanting to know whether it makes sense to invest in 8% fixed deposits that are offered by many banks now.

Similarly individuals also want to know whether it is 'good' time to invest or divest from equity markets. These are not stand-alone phenomena. Any change in market conditions would have individuals querying whether they need to take any action.

Unfortunately we always align our investments to market conditions. Ideally they should be aligned to our conditions (needs). Markets are always dynamic. There are developments in investment markets 24x7. If we keep modifying our investments based on market dynamics we will struggle to meet our own needs.

All kinds of investment opportunities have their characteristics. A prudent investor is one who remains focused on to his/her needs (financial goals) and chooses investment opportunities that will make his/her reach those needs.

Most of us want to save and invest. We want to create lots of wealth. Unfortunately we do not know for what we want to save and invest and how much wealth we want. Our goals are not clearly written, defined and quantified. Because our goals are not clearly written, defined and quantified we start focusing on market condition.

Imagine if we are saving money for our six-year-old daughter's higher education. This means our goal is at least 10 years away and hence we choose equity as an asset class. Now if stock market was to fall for 10 weeks we will not panic.

This is because we know our goal is 10 years away and hence 10 bad weeks has no relevance.

Suppose we board Gujarat Mail train from Mumbai, which goes to Ahmedabad. We want to goto Surat -- which is approximately midway. In train there will be passengers who will get down before Surat. There will also be passengers who will go beyond Surat.

However, nothing will affect us, neither passengers alighting before us nor those continuing journey after us. We are sure of our destination. If we were not sure of our destination then every time the train stops at any station we will wonder whether we need to alight the train at the station.

Similarly, when we are not focussed on to our financial goals we start wondering at every market developments.

If we want to lead healthy financial life then we need to clearly define our financial goals and stay focused on goals. If we have not defined goals then we will keep wandering and our financial life is not about wandering.

Mutual funds are one of the investment vehicles, which may be utilised for reaching our various financial goals. For our contingency needs we may use liquid funds linked with ATM facility. For our financial goals, which are 2/3 years away we may opt for debt-based funds. If we need regular income during retirement, one of the options is a monthly income plan.

For our long terms needs -- beyond 7 years -- we have variety of equity funds. Now we also have mutual fund schemes, which invest in global market and can help us diversify our portfolio across countries and currencies. Also days are not far off when we will have gold mutual funds and real estate mutual funds for common man.

The author is a Certified Financial Planner. He may be reached at gmashruwala@gmail.com

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