The Hindu Business Line : Investing in mutual funds

Industry estimates suggest that women make up between 30 and 40 per cent of mutual fund accounts. But numbers can be misleading and the account could be held by a woman, but operated by her father or husband.

Should women invest differently from men when it comes to mutual funds? If this question sounds odd or even chauvinistic, it really is not. How you invest your money often depends on what your objectives are, your investment horizon and the kind of risks you are willing to take. In each of these aspects, a woman's requirements may be quite different from that of a man. Even if you are a working woman, your investment requirements are likely to be somewhat different from that of a male colleague, father or a husband.

Here are three reasons why financially, women are different.

First, as the insurance companies will tell you, women often have a longer life span than men. This may mean planning for a longer retirement and preparing for the sunset years, when you may have to support yourself on your own.

Second, women are more likely to take mid-career breaks than men, either because of marriage or the need to take care of children. This could mean an interrupted career and starting from scratch, when you resume. A woman may have to save a larger portion of her earnings, if she is to remain financially independent, for that period when those monthly pay cheques are interrupted!

Third, statistical studies of working women overseas suggest that women often earn less than men with comparable qualifications, because of the conscious choices that they make through their working career. You may settle for a lower-paying job because it offers more flexible working hours. Or you may hesitate to jump jobs frequently, because you place a high value on liking your job. This means that you have to make every rupee you save go as far as possible towards building up a comfortable nest-egg.

These three factors suggest that women should probably take greater care about planning their investments, than men do.

An added responsibility?

However, it appears that women often hesitate to take charge of their financial affairs.

Take mutual funds. Industry estimates suggest that women make up between 30 and 40 per cent of all the investor accounts managed by mutual funds. Women, on an average, hold close to half of their investments in bond funds, while their allocation to equity funds is less than 10 per cent. These numbers suggest that women manage their investments not very differently from men!

But fund houses caution that these numbers can be quite misleading, if they are used to gauge a woman's investment or risk preferences. Though these investments are held in thewoman's name, the bulk of them are actually operated by a husband or father who represents the woman, or just invests in her name, for tax purposes.

"Women see investing as an additional responsibility that they don't want to take," says Sanjay Santhanam, who heads the marketing and sales function at Sundaram Mutual Fund, explaining why he doesn't see too many women investors walking into the Fund's offices.

If you hate risk...

He may have a point. Investing in mutual funds calls for considerable effort in selecting the right product and then tracking it, through market highs and lows. And who has the time to look up mutual fund Net Asset Values (NAV) in the newspaper, when a woman's typical workday starts with rustling up a decent meal, getting your reluctant child ready for school and answering interminable phone-calls and doorbells, all in the space of an hour.

"I invest mainly in fixed deposits. I don't mind their low returns because I'm sure they will give me a certain return at the end of the period. I don't have to track them on a daily basis or worry about whether it is the right time to sell them," says Priya Srinivas, a State Government employee in Chennai. Some working women also say that there's not much left for mutual funds, after they set aside a fixed sum every year for tax-saving schemes such as the National Savings Certificates and the Public Provident Fund (PPF). This is certainly a prudent move for those belonging to the salaried class, because anyway they do not have a very large surplus to invest. After all, apart from the certainty of returns, the returns from small savings instruments are also extremely attractive, even in relation to debt mutual funds.

Debt fund managers agree that the returns of 13-15 per cent earned by bond funds over the past four to five years are unlikely to be repeated. With interest rates bottoming out, the trading opportunities on bonds that made such returns possible, are vanishing fast. Investors will now have to make do with returns of between 5 and 5.5 per cent from debt funds.

Liquid funds make a good start

However, investors may have no choice but to turn to market-linked instruments in future, as islands of assured returns such as the small savings schemes, are gradually linked to the prevailing market rates.

When this happens, debt mutual funds would be an attractive option, given that they are available on tap, offer high liquidity and are also tax-efficient to boot.

But how do you choose between the various types of debt funds on offer? "A liquid fund would be a good product to start with," says Santhanam. In fact, he feels that all investors should consider liquid funds as an alternative to their savings bank account.

Liquid funds would fetch you a return of about 4-4.5 per cent per annum, about the same as what you earn in your savings account. But your effective earnings from liquid funds may be higher, he says. "While interest on your savings bank account is calculated on the minimum balance in your account on specific dates, a liquid fund would earn you this return on your average investment," he points out.

What about plain-vanilla bond funds? If you are planning to hold for a year or less, they appear unattractive right now, given the possibility of small blips in their NAVs. The values of plain-vanilla debt funds can dip over short periods of time, if interest rates perk up. Their higher expense ratios could also impact returns, relative to short term or liquid funds, could also dent their returns.

Taking the equity plunge

But if you are young, or just mid-way in your career, have a reasonable surplus to invest and are looking to build a portfolio of a reasonable size, you may have no choice but to introduce equities into your portfolio, in small proportions. You can look to invest a small proportion of your savings, say 10 per cent, in a diversified equity fund, and step up the investment, once you get more comfortable with the ups and downs of the equity market.

"If you are a first-time investor, start with small investments, to get a feel of the market risk. Once you go through one market cycle, you understand market risks better and are less likely to panic when markets go up and down," says Srividya Rajesh, fund manager for Sundaram Select Focus, an aggressive equity fund from the Sundaram Mutual Fund stables. She also prefers actively managed funds, to those that passively mimic an index, because there is a lot of scope for beating the indices in the Indian context.

"Pick equity funds for their long-term track record," she advises. And you don't have to complicate matters by looking at complex formulae such as risk-adjusted returns and betas; simply ranking funds by their long-term returns would do, she says.

But don't you have to time your investments well, when you invest in equity funds?

Not really. You should try and avoid taking the king-sized risks that come with bull markets. But you can make a reasonable return, if you are prepared to stay with the equity fund over one full market cycle, which is usually a five-year period, says Santhanam. "Even if you invested in equity funds at the peak in 2000, you would have made some money by today. Investors should develop the long-term mindset when they invest in equity funds. Do you look at your PPF account every year to see where your money went? You don't. You need to take the same approach with equity funds," he says.

Systematic investment plans, which allow you to invest in equal instalments spread over a long period of time may be a good idea, if you want to avoid the pitfalls of timing. "Fund of fund" products, now launched by a few fund houses, may also help keep your risk profile within check, without the bother of "booking profits" on your investment. In such products, the fund manager allocates your investment between different mutual funds on your behalf, and re-balances the portfolio periodically between debt and equity funds.

Women are said to have certain inherent qualities, which may make them particularly good investors. They prefer to do their homework, don't hesitate to ask for advice and are less likely to churn their portfolio at a frenetic pace for a better return. Why not put these qualities to work and take charge of your investments?

Picture by A. Roy Chowdhury

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