The Hindu Business Line : Why women should invest differently from men

MARKETERS of financial products often seem to think that their offerings for women should fund jewellery purchases or get you discounts on beauty salon bills.

But woman probably need a complete, customised financial plan to take care of their special investment needs. Yes, it is difficult to reduce financial planning for women to a few investment "tips" that apply equally to everyone.

But we hope this checklist will help women put more thought into your savings and investment decisions.

Make every rupee count

Women may need to take more, and not less, care with their savings and investment decisions than men. Statistical studies conducted overseas indicate that women:

tend to earn less than their male counterparts with similar qualifications, because of the career choices they make;

are more likely to take a mid-career break;

are more likely opt to retire early; and

have a higher life expectancy than men.

Obviously financial planning for a woman can be quite tricky. Women probably have fewer working years in which to build a nest egg, to see them through retirement. Yet you need to build up a larger sum to take care of a mid-career break and a longer retired life. This means three things for women's finances. They may need to:

Put away a larger portion of current earnings as savings, than what the partner or parent would, so that they have a larger sum when they quit work.

Minimise idle funds, so that every rupee is put to best use.

Choose investment conservatively, as they would not like to risk a big part of their capital.

Front-end your investments/loans

Most people count on a pay cheque that rises steadily through their career, when they make their financial plan. It may, however, be desirable for women to front-end their investments to the initial part of their career. This would put them in a better position to handle mid-career breaks or early retirement. What to do:

Develop the habit of systematic investing as soon as starting the career, so that a reasonable sum is saved up even after three-four working years;

Get into the habit of sweeping the rising bank balance into better return-yielding investments from time to time;

Opt for a single premium term insurance or pension plan, where forking out a one-time lumpsum in return for a benefit that will last you in later years; and

Opt to repay a larger portion of loan in initial years, through higher instalments or pre-payments.

Plan for a career break

Though this is no longer a certainty, women are more likely to take a mid-career break than men to raise a family. They may, therefore, like to save up some money which will help them tide over the hiatus in your career. What to do:

Allocate a significant portion of savings to fixed term investments, such as fixed deposits maturing in three-four years, so that cash is at hand at the time of the mid-career break;

Park these in low-risk investments that are unlikely to dent capital, and

Have an emergency fund that can help you meet at least six-seven months of monthly expenses, just in case that mid-career break happens suddenly. This should typically be in liquid investments such as liquid mutual funds or short-term bank deposits.

Plan for a long life

Statistics show that women tend to have a longer life expectancy than men. This means that you may have to plan for a lengthier retirement. Also plan for years when finances have to be managed in the absence of the partner. What to do:

Start saving for retirement early in career. The compounding effect will multiply the savings;

Put as much as possible into government or company-managed provident funds;

Invest in privately managed pension products such as those from insurance companies. Or create pension by investing regularly in a mutual fund;

Opting for insurance, choose a policy that offers cover for a longer tenure. Insurance premia are usually more sensitive to age of entry than to the term cover. A 25-year term plan costs only a few hundred rupees more than a 15-year term plan

If there are any loan outstanding, including in the name of spouse, make sure both are insured. This will ensure that one is not over-burdened by repayment in case the other person dies.

Be wary of `women's' products

From insurance to bank accounts, most marketers now have a product or two for women. But do not get taken in by their attractive packaging. Instead evaluate such products on their merits and see how they stack up when compared to other plain alternatives. Remember, most marketers have just one or two products marked out for women, but their basket may offer scores of choices for others.

What to do:

If it is a "woman's" credit card, evaluate if it is really needed. Two cards will mean two sets of annual fees and more paperwork to keep track of payments;

If it is a bank account, check for genuine benefits such as better access, lower minimum balance requirements and lower charges on operating the account;

If it is a loan product, check out how the service charges, repayment terms and interest rates compare with personal and other generic loans offered to all customers, and

Quite a few "women's" products seem to throw in add-ons such as discounts on shopping bills, grocery purchases and beauty treatments. Check if these really are useful add-ons that will be used regularly. Remember, most financial products entail some recurring charges, which will drain finances. Do not end up buying a product just for the occasional discount that it may fetch when indulging in a shopping binge.

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