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‘Saving’ and ‘investing’ are terms often used interchangeably in India. What is the difference and why is it important to differentiate it at the very outset?
Savings is money set aside for contingencies which offers minimal or no rate of return. Investments, on the other hand, are a systematic approach to wealth creation; investing is a process of having money generate more money by compounding itself into a larger corpus over a period of time. Simply put, investments are nothing but a way to multiply one’s savings.
Conventionally, India has always been a savings-focused nation. The household savings rate in the country was around 26% of the household income in 2016. A large chunk of this household saving can be attributed to the lady of the household: women in India have always saved using traditional methods like using a basic savings account, saving cash or using a recurring deposit, at most.
For Seema, a middle-class Indian housewife, saving a certain amount of money every week from the household earnings in a money bag is a habit. At times, she invests part of this money in gold. She also attends monthly ‘kitty parties’ – a popular informal chit-fund saving concept in India. Her husband though, actively invests in mutual funds and stock markets, and manages other investments, which is a primary source of post-retirement wealth for the couple. While her personal savings may last her a certain amount of time, Seema might face larger issues nearing retirement and old age, when her husband may not be around to manage finances for her.
Contrast this to Akshita, a 25 years old metropolitan woman, working in a tier-I city in a marketing job. She has been mulling over the idea of investing in mutual funds for quite some time, but is unaware of whether to do it via an app, online portal, or through a tax advisor. The onus of investing for her – buying insurance, purchasing mutual funds in her name – will probably lie with her father, while she mentally promises herself that she will invest in mutual funds after receiving her salary hike during appraisal.
Why don’t these women invest?
Why do women like Seema and Akshita not invest? Lack of financial literacy often hinders women in Indian cities from actively investing their savings systematically. Today with 80% of Indian women being financially illiterate, even with money at their disposal, women are not making the most of the situation. Among working women in India, only 23% of women take their own investment decisions. The remaining 77% depend on spouse or parents. Most women are informed of the decision already taken or are at best, joint decision makers.
In India, men are taught to be financially prudent from an early age because of their ‘responsibilities’ towards their parents, spouse and children. Conventional gender roles in the country define men as the bread-earners and women as the nurturers, even in progressive Indian households. Additionally, advertising and marketing messaging by financial services companies tend to communicate to men, since they consider them to be the primary source of revenue. It is due to these reasons that women tend to take a backseat when it comes to actively investing. So how do women begin to actively invest?
A journey of a thousand miles begins with a single step. Try to read and learn as much about financial instruments and schemes available in the market. There are various wealth management apps, communities, personal finance workshops and courses available online and offline free of cost. Educating yourself and asking questions is the only way to go about things.
Various low-risk options, such as Public Provident Fund (PPF) and Recurring Deposits (RD) are good to start early. The amount needed to invest starts as low as INR 500 a year. PPF also offers tax benefit on a maximum INR 1,50,000 annually. Large amounts of money, say INR 1,00,000 can be invested in a Fixed Deposit (FD) that will yield anywhere between 5-8.25% interest depending on the amount and maturity period. These accounts can simply be opened online without a bank visit and are great income tax saving tools.
One of the biggest mistakes women often make is ignoring insurance. Even though women tend to have higher life expectancy and greater incidence of lifestyle diseases, they tend to avoid individual Mediclaim because they are usually covered under the family policies held by parents and/or husband. As far as life insurance in India is concerned, the stereotypical narrative is that a husband will buy a life cover in order to ensure a better life for his wife and children after his passing. Thus, there is no need for the wife to get a life insurance. However, both health insurance and life insurance are critical for ensuring financial security and offer additional tax benefits on various schemes.
While simpler instruments are great to begin early with, it is important to evolve your portfolio as you go along. Terms like SIPs, mutual funds, equities may sound intimidating, but it is all a matter of knowledge and education. Once the understanding sets in, things become easy and the potential to make your money grow steadily increases exponentially. Various tools such as money management apps and online tutorials to understand financial management are available online. Further, one can always go to a financial advisor for money related questions.
The above is just an outline of how to begin investing – the necessity of managing one’s own investments, especially women, cannot be stressed enough. Small steps will lead to a financially safe and secure future, so get out there and start investing!
A version of this was first published here.
Image source: shutterstock
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Priti Rathi Gupta MD Anand Rathi and CEO LXME ( http://lxme.in/)
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