Alina joined my WhatsApp group ‘Women & Money’ after attending one of my sessions. Like other 30-year-olds, she is enjoying life, working hard and pursing her interests. She saves a limited amount every month as she is trying to balance her future savings and fulfil her aspirations. In a goal planning exercise, she was shocked to know that she had to be saving much more for her financial goals. She mentioned being so demotivated about not being able to achieve financial freedom despite investing regularly. She felt that she might as well splurge like her friends do and leave the responsibility of long-term financial goals to her partner.
It is common for women to assume that their income is secondary or meant to be spent/ used for expenses/ EMIs. But what they forget is by doing this, they will not have much money or assets in their name. Not a great situation to be in. With limited resources, women need to focus on some important financial matters and products which impact their lives.
Flexi fixed deposits
Confidence comes from being prepared. During emergencies, most women are not aware of how to access the contingency funds or insurance details. While being aware of family finances is imperative, having your own emergency fund is necessary. Keep six months of expenses in a flexi fixed deposit, which can be accessed easily. The advantage of bank deposits is that one can also take short term loans for up to 90 percent of the fixed deposit value. These loans can be taken online easily and quickly. Do keep in mind that flexi deposits are good for short term investments but do not work well financial goals above 3 years.
Super top-up health insurance
Having adequate health insurance cover is paramount. Do not rely on the employer provided cover alone. Take external health insurance too. A health cover (which can be taken as a family floater as well) of Rs 15-20 lakh is recommended given the cost of treating large illnesses. A cheaper way to take health insurance is through super top up plans.
A super top up provides health cover at a very low cost subject to a copayment being made by you. So if you have a cover of Rs 10 lakh with a deductible of Rs 1 lakh, you will need to pay the first one lakh(cumulatively) in claims through year and the balance will be covered by the insurance company.
Also read: Five money myths that women must bury
Active equity option in national pension scheme
The way women think about retirement has changed over the years. Early retirement is the order of the day and retirement is about pursing your interests and fulfilling unfinished bucket lists. Hence just investing into traditional instruments like employee provident fund or public provident fund isn’t going help build the required corpus. If you are 30 years old today and have expenses of Rs 50,000 per month and want to retire at the age of 50, you will need a corpus of Rs 3 crore and will need to invest Rs 48,000 per month. Let us say you can invest Rs 25,000 per month. This amount invested in EPF alone will grow to Rs 1.58 crore at age 50. But the same amount invested into NPS will grow to Rs 2.50 crore (assuming 12 percent p.a. returns). Of course, you can choose a blend of EPF and NPS to balance the risk.
The equity component can be taken through the active equity option in the National Pension scheme, a low-cost retirement saving scheme. The NPS is a great way to save for retirement as it makes you invest in a disciplined manner every year and with the funds being locked in till age 60, it helps compounding your money. The active equity option is recommended as it provides high equity exposure through the investment period, which will provide impetus to the overall returns.
Flexicap, midcap & index funds
Women hate losses and shy away from equites. But traditional investments do not beat inflation, thus not growing money. Further, the value of financial goals is high and in most cases, people do not have the requisite amount needed to be invested for financial goals. If you still want to meet long term goals, you will need to take at least 30-40 percent exposure to equities.
But choosing among equities is confusing. Imagine trying to figure out which stock to buy among 4000 listed stocks in India. Use your time and money better by investing in mutual funds, where the fund manager will evaluate the stocks. But with 12 different equity categories and more than 350 mutual fund schemes, how does one choose the right equity fund? Worry not – simply choose from the MC 30 list of Moneycontrol. This is a list of 30 mutual funds curated through a rigorous research process.
Within equity funds, index, flexicap and midcap funds have given consistent risk adjusted returns on a long-term basis and a combination of these funds will provide good diversification.
Ladies, it is the process of managing money that matters while building wealth. Make the right moves with the above products.Happy Women’s Day!