Managing money is not new to women. They’ve been expertly juggling everyday expenses with saving for long-term goals since the days when there were hardly any banks or lucrative investment options. Today, women have far more opportunities to invest. They also have much more money in hand, especially if they are working and are financially stable.
While everyone wants to grow their capital, many women in India shy away from investing due to their limited financial knowledge or understanding of the various options. Others are under the misconception that investing requires large sums, so they postpone the decision for when their income is higher.
Why Should Women Invest?
With the role and responsibilities of women evolving with the changing times, there is a clear need for women to take charge of their finances. They need to invest wisely and make their wealth grow for several reasons, some of which include:
- Financial independence: Women can have a better control over their financial future if they choose to invest right towards being financially independent.
- Wealth building: Starting early and investing consistently can help women tap into the power of compounding to steadily build wealth over a period of time.
- Retirement planning: Women generally live longer than men. Hence, they need to ensure that they have enough savings to last through their retirement years.
- Closing the gender wealth gap: Investing can help women close the gender wealth gap by providing them with access to the same investment opportunities as men.
How Should Women Invest?
It’s important for women to consider their individual goals, risk tolerance, and financial situation when planning their investments. Before delving into specifics, it is important to first answer a few questions. What are the priorities for a woman to invest? What is their ability to save? When is the money needed? What is their risk appetite? Let us examine each of these in detail:
- Identify your needs and evaluate the duration of those needs
What are the goals and aspirations you need the investment to fulfill? The duration will give you an indication of the amount of money required and the investment horizon for each goal. Once you have identified your priorities and the timelines, it is important to match them with the appropriate investment products. Here are some examples:- Saving for a short-term goal: If you are saving for a short-term goal, such as planning an international holiday, putting a down payment for a house or vehicle, or paying children’s fees, you may want to consider a Savings account or a short-term bond. Investments in recurring deposits, liquid funds, and fixed maturity plans will also provide safety of capital and return on investment for short term goals.
- Saving for a long-term goal: Long-term goals such as children’s higher education or marriage, or setting up a business, can be achieved by investing in equities, ULIP and ETFs.
- Saving for retirement: If you are saving for retirement, you may want to consider investing in stocks, mutual funds, pension funds, or exchange-traded funds (ETFs). These products offer the potential for higher returns over the long term.
- Assess risk tolerance
Risk is an important factor in investing as it determines the investments you choose. The rule is simple, high returns involve high risk. If you are someone who treads cautiously, opt for low-risk investments but be informed that the returns will not be high.
As a risk-averse investor with long-term goals, you can invest in debt funds, savings insurance plans, bonds, conservative mutual funds, and bank deposits that give you low but steady returns. The risk-takers can get higher returns from equities, ULIP, and savings insurance plans.
- Evaluate your ability to save
Investments come from your disposable income, which will determine your investment capacity. Ideally, you should save a fixed amount every month and manage your spends with the remaining amount. It is important to strike a balance between investing and other financial priorities, such as paying off debts.
- Diversify your investments
The saying “Don’t keep all your eggs in one basket?” applies for investing as well. Diversification helps investors manage risk by reducing the impact of market volatility on their portfolios. By diversifying across different asset classes, such as insurance, stocks, bonds, and mutual funds, you hedge the dependency on any one asset class for returns.
- Determine your level of financial knowledge
While you do not need to be a financial expert who understands the nitty-gritties of how investments work, a reasonable level of financial knowledge will help you gain better control over them. It is important to educate yourself on investment options, how returns are calculated, financial planning, and the risks and rewards of different investment products, for your own benefit.
- Hire an expert advisor
Even if you do have a good amount of financial knowledge, it may be difficult to monitor your investments on a regular basis, especially market volatility. Hence, it’s advisable to hire a professional financial advisor to provide guidance and help create an investment plan that aligns with your financial goals and risk appetite.
- Leverage tax benefits
Investing in tax-saving investments such as Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-linked Savings Scheme (ELSS) can help women save money. These investment options not only offer tax benefits but also help women build a corpus for their long-term financial goals.
- Insurance offers the best protection
Contrary to what people think, insurance is associated with protecting life and benefiting from this. Different insurance plans fulfill different needs – such as financial security for family, wealth creation, income generation, retirement planning, healthcare, children’s future ambitions, and a whole lot more.
Bottom Line
Women should invest based on their individual needs, priorities, and financial goals. It is important to assess your risk tolerance, financial knowledge, and ability to save. Once you have identified your needs, you can match them with the appropriate investment products.
Seeking professional help can also be beneficial for those who lack the knowledge or experience to invest on their own. By taking the time to understand your financial situation and needs, you can create an investment plan that aligns with your goals and helps secure your financial future.
