When it comes to savings and being financially independent, Indian women have earned their place. A RBI report released this January highlighted women’s share in total credit and aggregate deposits increased to 20.4 per cent and 32.8 per cent, respectively in March 2018 from 19.3 per cent and 32.0 per cent a year ago.
Though such statistics draw a pretty picture, in reality, most Indian women are still not adept with money matters. Only 47 per cent of women surveyed are confident about financial planning, concluded a study by Mussett Wealth Management, an independent financial planning firm.
Whether you are an entrepreneur, a salaried individual or a homemaker – the common thread that binds us all is the aspirations to achieve something in the future. And, proper financial planning is a stepping stone to achieve those dreams. Saba Adil, Chief People and Operating Officer, Aegon Life Insurance, said, “Financial planning is critical and not only from the perspective of earning interests or gaining on stocks or investments. It includes how you plan the well-being of your loved ones, your future, retirement, old age and health care.”
In order to get started, one needs to classify her goals in short, medium and long-term basis. For instance, purchasing gold or planning a dream vacation fall under short-term goal, buying a house or a car can be figured into medium-term goals. Planning for your children’s higher education, providing for dependent parents or saving for your retirement needs fall in the list of long-term goals. For planning for such needs, one needs to assess her risk appetite since different products have different risk-return patterns.
Not only through investments, but risks can also come from all quarters like job loss, wedding expenses, maternity, divorce or anything that can hamper the savings. This is when a proper financial planning can take care of such contingencies. Asset allocation for your goals will depend on your risk profile and investment horizon. And, there are two ways a woman can invest their savings – equity and fixed income instruments.
Financial planners usually suggest while equities (stocks) provide long-term growth, they can be volatile in the short-term. Hence your portfolio should have a decent mix of equity and fixed income products. Amisha Vora, Joint MD, Prabhudas Lilladher, stated, “Ideally your exposure to equity should be 100 per cent minus your age.” Fixed income products like bonds and debentures give you steady returns at a lower risk. Also in the fixed income space, one can opt for debt mutual funds, corporate fixed deposits to earn a higher yield with better tax efficiency as compared to bank fixed deposits.
Taking the first step is always the hardest. However, in terms of investments, experts suggest, starting early is the key. Vora said, “My early investments enabled me to support my close relatives whenever there was a need.” Breaking it down, she explained, if you invest Rs15,000 every month at a rate of return of 15 per cent you will have `1 crore at the end of 15 years. Such is the power of compounding. Systematic Investment Plans is one of the best ways to start your wealth creation journey,” she added. The rule is to identify and set goals to mark the beginning of the financial plan.
Even today, most homemakers find dealing with money complicated. However, if one can identify the needs, it is easier to start with a financial planning. Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management, advised, “Take stock of all your savings and investible surplus and make saving a habit early on. Consult a financial advisor and don’t try to solve everything yourself. Have clear goals and invest as per them – remember your goals are your own.” Every homemaker should treat the money they get to manage the household expenditure as their monthly income. Also, they should inculcate financial habits. In fact, starting an investment in mutual funds is one of the best options. Priti Rathi Gupta, Founder, LXME, and MD and Promoter, Anand Rathi Share & Stock Brokers, said, “Mutual funds are best for homemakers as well, especially those who have a tendency to save in cash. It will give them better returns.”
It should be noted, apart from sound financial investment, every women should have liquid assets in hand. Anita Rastogi, Partner - Indirect Taxes, PwC, commented, “Liquidity is a critical factor for me. Meaning, I should be able to get my funds as and when I require. So my portfolio always included a portion of investments which had high liquidity. I choose a diverse portfolio keeping the above factors in mind. It ranged from bank deposit, company deposit, shares and securities, bullion, real estate, insurance schemes and other investment options.”
However, this does not mean that you can stray away from investing in risky assets. To combat the current inflation rate, it is always recommended that one should invest in equity for a long horizon to get a higher return. Lakshmi Iyer, CIO (Debt) and Head – Products, Kotak Mutual Fund, explained, “As a homemaker, you can invest in equities. As an asset class it has demonstrated the potential to beat inflation over a long period.”
Considering working women have extra financial responsibilities, they should start planning earlier, even before they start investing in any financial product. “For working women, hybrid mutual funds for a longer period are one of the best investment options. These funds are invested in equities in small proportions as compared to debt. This factor gives a good risk reward equation to first-time investors,” pointed out Rathi. In such cases, planning is the key. Adding to this, Adil said, “Know your expenses, keep funds aside for contingencies and make sure you don’t have deviations. Allow yourself a five per cent (or any number that you think is reasonable) deviation and stay within that luxury!” Always remember there is no “unlimited budget”. The resources are limited and aspirations are boundless.
Understanding the basic finances is even more critical for a single woman or some who went through a bad marriage. They should consider expanding their portfolio and should take the help of a financial planner. Equities are volatile over the short term, however, in the long run, they deliver healthy returns. Whereas fixed income instruments provide lower yet regular cash inflows and bring stability to your portfolio. Your risk appetite and tenure of intended holding should be a catalyst to determine how much per cent should be allocated to equities and debt.
Today getting started and also getting the right advice is like trying to find a needle in a haystack. “While comparing financial instruments, they are not apple to apple - like you cannot decide if you want to go for mutual fund or stocks or fixed deposit or invest in gold... because the risk and return ratios are different, the liquidity of funds is different,” said Adil. As much as paying attention to your own risk profile is of prime importance, distinguishing to invest in which fixed instruments can also be challenging. Iyer said, “Challenges were at the initial stage when there was a lure to own many asset classes including traditional bank deposits and gold! Fortunately with empirical data on your side, such challenges can be mitigated. Financial planning to me, therefore, boils down to only equity and fixed income.” Today the importance of financial planning cannot be undermined especially when it comes to earnings and savings, also the inflation factor cannot be ignored. “When you initiate a financial plan, a lot of myths get busted and a more realistic goal planning is possible. Having an important financial corpus is non-negotiable,” explained Iyer.
Often women have to compromise on their career front due to domestic work and childcare. This also restricts them from financially supporting a child or elderly parents, paying for a child’s education or something else along those lines. Nevertheless, women today are saving more into lower risk-lower return options, such as bank fixed deposits, Public Provident Fund or traditional life insurance products. However, this trend is further changing as more and more women are getting financially savvy and investing in high returns instruments such as ETFs, mutual funds and investing through direct stocks. To conclude in the words of American author and financial advisor Suze Orman - “A big part of financial freedom is having your heart and mind free from worry about the What-if’s of life.”
So ready, on your mark, get-set and start your financial planning!
himali@outlookindia.com