Invest differently, woman

| Updated on: Apr 19, 2012
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Your idea of a holiday is a jungle safari in South Africa. His is to lounge on the couch at home. You love soap operas. He is glued to IPL. You want to save for a farmhouse. He wants to blow it on a home theatre system.

Let's face it — women often want very different things in life compared to men. Why then, must women mimic men in their financial decisions? Or worse, completely leave their saving and investment choices to men. Yet, mutual fund advisors, insurance agents and financial planners say this is what many Indian women do.

Here are four compelling reasons why women should invest differently from men.


Set for a mid-career break

Women may take an early break in their career after marriage and re-location. They may put a promising career on hold to start a family. Or they may temporarily stop working to pursue higher studies or travel.

Now, such a break within the first 5-10 years of your working life can be quite unsettling. You might see yourself forced back from carefree spending to near-penury!

The antidote is to maintain a more flexible portfolio than the guy next door. You can do this in three ways:

Stay off large loans

In the first few years of your career, don't take on king-sized loans with hefty repayments stretching for 10 or 15 years. Young, single women are said to be emerging as a significant category of home buyers in the metros. But buying a home as soon as you start on your first job is a particularly bad idea.

With interest rates swinging up and down, monthly EMIs (equated monthly instalments) may take a big chunk out of your disposable income over the long term. With the EMI hanging over your head, should you move to another city, renting out the house will often not fetch even half your monthly EMI. Taking a break from work will be next to impossible. If you take an education loan, tighten your belt and repay as quickly as possible.

Don't lock into ULIPs

You should avoid investment products that demand large monthly or yearly payments for several years running. Many of us have been coaxed by a friendly neighbour or a forbidding aunt to sign up for a Unit Linked Insurance Plan (ULIP). These usually carry fat premiums (not less than Rs 25,000-50,000 a year) and run on for 10 years or more.

They entail a minimum five-year lock-in period and stiff penalties for skipping premiums too.

Flexi investing

Thankfully, though, many investment options other than property and ULIPs allow you to combine flexibility with good returns. If you are investing for a goal that is over five years away, Systematic Investment Plans (SIPs) in equity or balanced mutual funds are a good option. You can sign up for SIPs six months at a time, for sums as low as Rs 1,000 a month.

Mind you, to reap the rewards of equity investing, your holding period must be five years or more. But open–end mutual funds do allow you to withdraw money at any time. So, faced with an emergency or a mid-career break, you can stop and cash in on your units.

Rather than fixed deposits, opt for a liquid mutual fund or a short-term debt fund, which are safe and more tax-efficient as they are mainly invested in government bonds. Such funds managed a return of 6.5-7 per cent a year in the last three years.

Choose gold exchange traded funds — which you can sell in the blink of an eye — instead of jewellery, which is illiquid.


Plan to live longer

Insurance companies will tell you that women, on average, live longer than men. Yet, a recent survey by HDFC Life and Valuenotes showed that the majority of urban Indian women don't spare much thought to retirement. While 56 per cent of the women surveyed saved for their children's education, 34 per cent for a family holiday and 33 per cent to meet EMIs, only 26 per cent actively planned for retirement!

Longevity means three things for your investment plans.

While taking a term insurance policy, choose one with the longest possible term to ensure your dependents are protected. Taking the plan early in life can mean big savings on premium.

While investing in a retirement or pension plan, you will need to target a higher sum than your partner. Accumulating a bigger sum will require you to start earlier. This also means scouting for investments that fetch higher returns such as equities.

If you are a homemaker, draw up a plan that can help you meet your living expenses, medical bills and lifestyle needs if you outlive your partner.


It's not about time

The daily gyrations in the Sensex often spook people into thinking that their portfolio needs constant watching. It isn't easy juggling a full-time job or a homemaker's role and the responsibility of child-rearing.

But with technology aids, you can actually put your portfolio on auto-pilot.

If you own a number of equity funds and ULIPs, substitute them with just two-three balanced mutual funds. It saves you the trouble of monitoring your portfolio. Balanced funds automatically sell stocks and buy bonds whenever the equity markets turn bullish and vice versa. In effect, you hold a steady 60:40 mix of equity and debt at all times, without lifting a finger.

Opt for cumulative deposits and ‘growth' plans, which save you the trouble of tracking dividends and reinvesting them.

Sign up for SIPs in mutual funds through the ECS route.

Monitor your investments through an online money management tool such as Moneycontrol or Intuit.

Sign up for an online stock trading portal (ICICIDirect, HDFC Securities, Kotak Securities to name a few). Rather than trading in stocks, you can use the portal to invest in fixed deposits, debentures, infrastructure bonds, tax-free bonds and gold exchange traded funds.


Complement his portfolio

Many international studies on investing say that women are less likely to take outsized risks. They more often invest for the return, rather than the thrill. This suggests that women can actually add great value to their family finances. If you run a double-income household, look to complement, rather than mirror, the risk and asset choices of your partner.

If the bulk of your partner's salary goes to repaying the home loan, you should find ways to save a larger portion of your income. If his investments are mostly in super-safe fixed deposits, you should take on risk by buying equity funds. If he loves to punt in penny stocks and play the futures market, you can play safe with bank deposits.

Such a team approach to investing promises to ensure that even if the markets turn manic, your portfolio sails smoothly.

Published on April 19, 2012

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