Women And Finance

Today’s woman matches shoulder to shoulder with her male counterparts, striding towards equal or greater success, while having to balance a lot more on their plates! From home affairs, to professional careers and nurturing their children, she has her hands full. It therefore becomes critical for her to step back and ponder over how financially equipped she is to face the challenges of the future with or without the support of her partner, family or parents.

Analysis and reports indicate that women demonstrate stronger saving rates than men, and enjoy better long-term investment performance. They are proactive in savings for their future. Having said that, too many women still hesitate to take control of their finances though it is imperative for them to have a solid understanding about how to manage money and invest for the future. Here are four areas that all women must seriously consider to financially engage themselves in:

1. Insurance:

This is the first step towards financial freedom. Protect your family, your liabilities and yourself with a pure health cover and a life cover. Life Insurance is the only product which you should have even if you don’t need it because when you need it, it may be too late to get one! Take a pure term cover and avoid any investment-linked insurance/endowment plans – these are high in charges and a very returns-on-investment strategy. The younger you are, the lower the premium amount you pay and the more you delay, the higher the cost associated. You can also avail tax benefits on the premium paid. All you need to do is go online and buy directly from the insurance companies – here you eliminate agent’s costs and premiums would be 15%-25% cheaper every year! It’s a lot of savings. Stick with reputed organisations.

2. Asset Allocation:

Asset allocation to investments is what a bun-muska chai is to an Irani restaurant – a very critical aspect of portfolio management! Asset Allocation is the backbone of any financial planning and unfortunately one of the most neglected subjects in the world of investments. As per book definition, Asset allocation is nothing but diversification of funds across different asset classes based on the individuals age, risk appetite and time horizon. By asset class I mean low risk low returns and high risk high returns products. E.g. Fixed deposits, PPF, tax free bonds, stocks, mutual funds, Gold, Real Estate, etc.

Did you know that asset allocation determines over 90% of the portfolio returns and the rest is due to product selection and timing of investments? It supersedes product selection and market opportunities! So, decide your asset allocation based on your risk appetite and then determine the avenues you need to invest.

3. Public Provident Fund (PPF):

This should be in every investor’s portfolio. If you don’t mind the 15 year wait period, then no other fixed income investment can match the PPF return for the safety it offers. At 8.1% per annum, tax free, it is ideal for long term wealth creation. The amount you invest is eligible for 80C deductions and the returns are tax free too. If you start contributing Rs 1.5 lakhs every year, they can build a tax-free corpus of over Rs 41 lakhs over 15 years. That is the power of saving and compounding.

4. Systematic Investment Plan (SIP):

SIP is a simple strategy to invest a fixed amount into mutual funds, on a monthly basis, for a specified duration, in a disciplined fashion. This modest method exemplifies power of compounding and cost averaging. The benefits are plenty and de-merits are none! SIP allows you to invest during regular intervals without committing a large lump-sum amount. To illustrate the power of compounding, let me illustrate with real example.

E.g 1: An investment of Rs 5,000 per month in HDFC Top 200 fund since its inception (20 years ago) would generate an eye-popping corpus of Rs 1.37 Crores today! 21% average yearly return with a total investment of just Rs 11,95,000/-! Many more funds have delivered at par or with even better returns! This is higher than any property in Mumbai! Tax-free after 1 year and money available in 3 days – whenever you need it! What can beat that? Having said this, please note that SIP is ideal for a duration of 10-15 years because unless it doesn’t witness the market’s ups and downs, the cost averaging won’t come into effect. Usually a market cycle of a bull and bear rally is witnessed within a duration of 8-10 years.

Mehran Felfali
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About Mehran Felfali

Owner of investment and consultancy firm – ‘Ethix’ is open to answering any relevant queries on handling your finances. Mail him at: mehran@ethix.net.in or visit his website on www.ethix.net.in

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