1 April 2021
Women in India have a complicated relationship with money. They tend to live longer than men but earn lesser. Indian women outlive men by almost three years with an average life expectancy of 70.4 years. In urban India, the number goes up to 73.7 years. Life in urban India is also more expensive.
If there is a pressing need in the family, it is often the woman who takes a career break. The reasons could be many: pregnancy, taking care of children, taking care of aged in-laws or parents, or even sickness in the family. The Centre for Monitoring Indian Economy data says that 2.4 million women dropped off the employment grid in 2017.
When you take into account all these factors, it becomes very important that women chart out a proper financial plan for the long run. It doesn’t matter if the woman works or not, ideally, no woman should be dependent on someone else for their monetary needs.
A plus point for women is that most of them start saving early. However, most of their money just sits in a savings account earning a measly 3-6% interest rate. This isn’t enough to beat inflation. Over the long term, they lose money. Women need to talk to financial professionals to understand the different kinds of financial instruments they have at their disposal. Women can use different financial instruments to meet their needs.
Women are uncertain about investing in stocks and mutual funds because of various reasons. But they need to remember, the more time they have until they need the money, the more equity-heavy their investments should be.
The first thing that women need to do is plan for their retirement. Small amounts are sufficient to start with. Let’s assume a woman starts investing at age 23 when she gets her first job. An investment of Rs. 1,000/- every month for 37 years (until the age of 60 at retirement) in an equity-oriented fund would get her a total corpus of Rs. 65.12 lakhs, assuming a rate of return of 11%*. If she increases that amount to Rs. 2,000/- she will end up with a corpus of Rs. 1.3 crore.
*SIP in Kotak recommended large and multi-cap funds over the last 5 years, have generated a return of ~11% as on 31st Jan 2020.
Most women plan for emergencies. In most families, women understand and anticipate family emergencies better than the rest of the household. Women can invest money for emergencies into fixed-tenure instruments. Ideally, they should have at least six-months of emergency funds available at short notice. This could mean deposits in banks or opting for debt funds that are not very volatile. Certain debt funds can give a return of up to 6.5%. This will ensure that they can access this money when they need to.
Whether it is a fixed tenure instrument or a mutual fund, women should understand how compound interest works and use it to their advantage. Compound interest helps money make more money. Keeping money at home or investing it into chit funds is not the best utilisation of funds. This means women should not liquidate their assets for cash at the smallest provocation. The mutual funds or fixed tenure instruments should be allowed to grow without frequent withdrawals.
Talk to your finance professional today. Understand your goals, time horizons and the best kind of financial instruments suitable for you.