“I really want to begin investing my savings but the thought of losing money in volatile markets really pulls me back,” says Vandana Singh, who works as a senior software engineer at a multinational corporation. “The fact that financial decisions are made by the ‘men’ of the house has intrinsically made women believe that it’s not their cup of tea,” says Veera Jain, research associate at a prestigious educational institution.
Have you ever wondered why, despite it being one of the most important aspects of living a fulfilling and secure life, there has been no inclusion of financial education in our school curriculum, or even our corporate setup?
While we must be aware of the ‘types of money instruments’, the actual practice of investing still remains a mammoth task for many. Women, especially, have been trusted enough to work and earn adequately but not enough to actually place their earnings in the right spheres.
Women who are capable enough to get hold of managerial positions at their workplace are predominantly made to feel inferior when talking about financial terms – so much so – that now even women themselves have started to believe that managing finances and investing money in markets is way beyond their understanding. Lack of confidence, being dependent on others for financial consultation, fear of losing one’s hard-earned money are among several factors why finances and women are not considered to sail in the same boat.
Meanwhile, it is crucial for us to know that one not only attains financial independence through earning but also through putting their earnings at the right places, eventually to save for the important events in life and retain a retirement corpus.
The primary determinants
Your mode(s) of investment(s) can depend on any one, or more than one, of the following factors:
- Income – You can decide on what percentage of the income you would prefer to spend, save as liquid cash and invest in short-term or long-term securities.
- Age – If you can/would start investing at a young age, you are usually capable of taking more risks and can invest in stocks or equity mutual funds. If you are in your 30s or 40s, you could possibly prefer to invest a major chunk of your savings in less-risky and highly-liquid assets.
- Technical know-how – If you are reading this on your mobile phones, you can possibly use the same device to download an application like Groww, Zerodha, ET Money among others and begin to invest with a few clicks. Yes, you read that right! And if you face further difficulties to operate your demat account, well, help is just another click away.
- Risk appetite – If your income and spending patterns allow you to set aside some part of your earnings in securities where there is a greater risk, you could possibly also benefit from greater gains. On the other hand, if you prefer to remain risk averse, gold and mutual funds are the easiest and safer ways to start.
- Willingness to learn/invest – The most important step to begin anything is to have the willingness to get involved in its understanding. If you plan to have a more secure future and have contingency funds for emergencies, begin today!
The various options for investing your money
Let us now take a look at how one can ‘begin’ to invest and make their money work for them, instead of simply working for their money!
Stocks are securities that give shareholders a share of ownership in a company; one can then directly benefit from the capital appreciation in a company’s stocks. However, during the current times when the Indian stock market is rallying and luring potential investors, investing in stocks might not be as straightforward, given its volatile nature and lower assurance of multifold returns. With adequate research and diversification across sectors and market capitalisations, one can definitely step into the stock market.
How to decide if ‘stocks’ is the answer for your investment choices?
- One should always take into consideration their risk appetite before investing in equities. You can determine your risk appetite based on the portion of monthly/regular expenses incurred from the income, any immediate key life event such as a wedding in your family or plans to settle in a different city/country.
- One should invest in stocks only after determining their immediate cash requirements. If you’re someone who can easily invest money and keep it aside for a longer period of time of at least over 2 years, stocks can be your go-to. However, if you need to fulfill any prompt needs at different points, investment in a more liquidable asset (one that can be easily encashed) should be preferred.
- Mutual Funds
Mutual Funds are securities for investors who want steady returns as they are a less volatile asset class. If you are someone who wants to begin investing but are wary of the risk involved, debt mutual funds could be an efficient starting point as they primarily invest in fixed-interest generating securities. Mutual funds can provide you with yearly returns ranging between 3% and 6%, and five-year returns ranging between 7% and 10%.
However, even these mutual funds are not completely risk free and carry potential risks such as interest rate risk and credit risk. Hence, one should always research well about the related downsides before investing.
Here is a list of Instagram pages/brands/newsletters that you can follow and subscribe to for regular updates on finance and related terms and events:
- The Ken
- Fixed deposits
Remember how our grandmothers used to advise us to open a bank account and put all our cash in an ‘FD’? Well, a bank fixed deposit is still a go-to method of investment for many as it is considered a comparatively safer choice for investing in India.
An FD is an investment instrument that banks and non-banking financial companies offer their customers where people can invest a certain sum of money for a fixed period at a predetermined rate of interest. The rate of interest varies from one financial institution to another. Fixed deposits are available for different periods, ranging from very short-term tenures of 7-14 days to long tenures of 10 years.
The mathematical formula of calculating interest returns on an FD is:
Interest on FD = Amount Invested x Interest Rate x (Duration/12 months)
where the interest rates could vary between 2.5% and 5.5% for general citizens and between 2.9% and 6.5% for senior citizens.
You could choose to reinvest the interest or receive an interest amount periodically in your bank account by investing in Cumulative or Non-cumulative FDs.
- Cumulative FDs pay you the interest and the principal upon maturity. The interest is reinvested every year. The cumulative FD option may be suitable for you if you do not need a regular stream of income from the particular investment.
- Non-cumulative FDs will pay you interest at fixed intervals. You could choose to receive interest payments monthly, quarterly, half-yearly, or annually, depending upon your needs. This will give you a regular stream of income.
However, if you are looking for adequate or aggressive returns on your investments, then FDs might not be able to fulfil the short-term purpose.
While fixed deposits involve little or no market risk, returns on mutual funds are driven by market forces.
- Liquid assets like Gold
If you are a working professional, the first thing that you might think of is putting your savings into gold that works as a unique asset which is highly liquid and carries no counterparty risk.
For people who are looking to invest in the luxury asset, the Reserve Bank of India has announced the issuance of Sovereign Gold Bonds that are government securities denominated in grams of gold. SGBs are substitutes for holding physical gold and investors have to pay the issue price in cash; the bonds will be redeemed in cash on maturity.
The bonds bear interest at the rate of 2.50% per annum on the amount of initial investment. According to personal finance experts, the RBI Gold Bonds are worth considering as an investment option since these bonds have the backing of the government.
Pro tip: One should always keep an emergency corpus to the tune of 3 or 6 months of your monthly salary in liquid funds, preferably cash or safe haven assets like gold. One should also try to keep all their financial data and passwords saved and shared with a key trusted nominee, in case something unforeseen happens.
How can we do our bit towards having a financially educated population?
Persons with knowledge in the investment domain could organise awareness campaigns within their communities, and conduct pro-bono mentorship for marginalised and low-income women groups. One can also follow social media pages across Instagram and Twitter, or subscribe to newsletters to have a basic understanding of concepts,
One can also introduce people to the various monetary instruments, simultaneously educating them about the potential risks associated with investment traps that claim to offer their customers with unbelievable premiums in a short period of time, but which usually fall apart and the customer ends up losing money.