9 Reasons Investing In Mutual Funds Is A Fab Strategy For Women To Build Financial Security

Investing in mutual funds can be a great way for even those without any financial knowledge to grow their wealth. Here is why.

Investing in mutual funds can be a wise decision for women. There are certain aspects and challenges that might make mutual funds particularly appealing or beneficial for women, given the unique financial realities and societal roles they often navigate.

Here’s a more focused perspective on why mutual funds might hold special appeal for women and I will support each reason with a real life story that I have encountered:

Gender pay gap and longer lives women live

Women often face a pay gap compared to their male counterparts and tend to live longer. This means they may need to stretch their savings over a longer retirement period. Investing in mutual funds can help women grow their savings more effectively over time to account for these realities.

When Anjali started her career in a competitive IT industry, she quickly realized the realities of a gender pay gap. Despite having similar qualifications and experiences, her male colleagues often received higher pay and more rapid promotions. This realization spurred her to take control of her financial future.

Inevitable career breaks

Women are more likely to take career breaks for reasons such as maternity leave or caring for family members. These breaks can impact their earning potential and retirement savings. By investing in mutual funds, women can potentially offset some of the financial impact of these career gaps through investment growth.

After marriage Nidhi took a brief career break to care for her newborn. During this time, she became acutely aware of her family’s financial dependency on a single income and the need to manage risks and ensure security for her child’s future. Her risk-averse nature made her cautious about investing in volatile markets directly.

Both Anjali and Nidhi started exploring their investment options and were introduced  to mutual funds by a friend. They were attracted to the idea of diversifying their investment across various asset classes to reduce risk. Additionally, the option to start investing with a relatively small amount through Systematic Investment Plans (SIPs) fit their budget well.

Nidhi and Anjali decided to invest in a balanced mutual fund, which offered a mix of equity and debt investments, providing a moderate growth opportunity while keeping the risk in check. They appreciated that their investment was managed by professional fund managers, which gave them peace of mind and allowed them to focus on their career and family.

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Risk aversion

Studies suggest that women tend to be more risk-averse than men. Investing in mutual funds offers a way to grow a diversified portfolio, which can help mitigate risk and align with a more conservative investment approach, while still providing the opportunity for growth.

Investing in mutual funds can be a safe way to financial independence

For women aiming for financial independence, mutual funds offer a straightforward way to invest in a diversified portfolio. This can be especially important for women who may be navigating financial independence after a life change such as divorce or the death of a spouse.

As Anjali’s confidence grew, she diversified her investments into equity-oriented mutual funds for higher growth potential, aiming for long-term financial goals, including her child’s education and her retirement. The flexibility of SIPs enabled her to increase her investments as her salary grew.

Anjali also took advantage of Equity Linked Savings Schemes (ELSS) for tax-saving purposes, which not only helped reduce her taxable income but also contributed to her wealth accumulation.

Saving for family goals

Women often play a key role in managing household finances and planning for family goals such as education, home buying, or retirement. Mutual funds can be an effective tool for goal-based savings, allowing women to plan for and meet these financial goals over time.

Over the years, Nidhi’s disciplined approach to investing paid off. The SIPs she had set up grew significantly, thanks to the power of compounding. Her investments helped fund her children’s higher education and secured a comfortable retirement for herself and her husband. Moreover, Nidhi became a role model in her community, inspiring other women  to take charge of their financial futures.

Empowerment through financial literacy

Engaging with mutual funds can encourage financial literacy and empowerment among women. Understanding and participating in the investment process can boost confidence in financial decision-making and encourage further financial education.

However, Nidhi and Anjali were aware of the potential downsides of the mutual funds. Among the most significant was the impact of fees, including management fees and other expenses, which can vary widely and significantly affect net returns over time. Additionally, both knew that while diversification reduces risk, it doesn’t eliminate it; market volatility can affect mutual funds just as it does individual stocks, and there’s no guarantee of returns. Tax implications also warrant consideration, as mutual funds can generate capital gains distributions that are taxable to the investor, potentially impacting the overall tax efficiency of one’s investment strategy.

Moreover, the performance of mutual funds heavily relies on fund management – so Anjali and Nidhi were very thoughtful in making the selection of a fund with a strong track. Understanding these challenges was essential for making informed investment choices, ensuring that the advantages of mutual funds were leveraged effectively against their inherent risks.

Investing in mutual funds gives a lot of flexibility and accessibility

The flexibility to start with smaller amounts through SIPs (Systematic Investment Plans) makes mutual funds accessible for women at various stages of financial readiness. This flexibility can be particularly appealing for those who are balancing multiple financial responsibilities.

It is easy to grow money by investing in mutual funds if you can’t or before you can take educated decisions

Anjali spent months educating herself on mutual funds, understanding the difference between equity, debt, and hybrid funds. With her risk-averse nature, she initially chose to invest in debt mutual funds, which provided steady returns with lower risk compared to equity funds.

As she grew more confident, Anjali diversified her portfolio to include balanced funds, aiming for higher returns while still managing the risk. She was particularly attracted to the idea of her money being professionally managed, as it relieved her from the pressure of having to make complex investment decisions on her own.

Estate planning through investment in mutual funds

Mutual funds can be an effective component of estate planning, helping women ensure that their wealth is managed and transferred according to their wishes. This can be important for women who are primary caregivers or who want to leave a financial legacy for their children or other family members.

What started as a small step towards contributing to Anjali and Nidhi’s family’s finances became a journey of empowerment and independence for them. The mutual funds not only grew their family’s wealth but also boosted their confidence in financial decision-making. They became actively involved in financial planning discussions, and their story encouraged many women in their circle to start their investment journeys.

Image source: by ShutterOK from Getty Images Free for Canva Pro

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About the Author

Sharda Mishra

I am a photographer and an avid reader. I am not a writer but I like to give words to my emotions. I love to cook and hike. I believe in humor and its impact read more...

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