Wednesday, April 20, 2011

How Should Women Invest?

In the previous article, I had talked in detail about why Women should invest and things like that. As a continuation, in this article we are going to look at some investment avenues for women.

So, lets get started!!!

Why should Women have a Personal Investment Plan separate from their Men?

It is important that women have a separate personal finance plan from her family, be it her parents or her husband. With changing times the need for separate finances has increased significantly. I hate to say this, but the rise in divorce rates is alarming. The surety of life is also lower with increase in accidents and stress related ailments. If a woman handles her own finances she is well prepared to handle money matters individually if the need arises. Knowledge of different investment avenues, savings and expenses is very important to run a family. A separate personal finance portfolio will prepare a woman to face financial challenges. Also, she will not have to bear a major monetary loss in the event of a divorce.

All the more reasons for women to start investing and have an investment portfolio…

What is an Investment Portfolio?

A Portfolio is nothing but the collection of investment instruments held by an individual or a company.

For e.g., An investment portfolio may include shares, mutual funds, gold, bank deposits etc.
To learn more about Investment Portfolio – click here

Look out for Financial Products that are custom built for Women

The first thing you need to do as a woman is, to look out for financial products that are custom made to benefit the women of the country. These products offer you special benefits and privileges that are not available to us (The Men of the country)

When something is available for you to use it, why not make use of it. Right?

Some of these products are:

Product Name Provided By Special Features
Jeevan Bharti Insurance policy LIC of India The policy does not lapse in the event of failure to make premium payments for a few years. It covers critical illnesses related to women
HDFC Women’s Advantage debit card HDFC Bank 1. Cash Back of Re. 1 for every Rs. 200 spent
2. Special discount on purchase of Gold Bars
3. Personal Accident Insurance Cover
4. Free Bill pay facility
and other loads of features
ICICI Womens Advantage Savings Account ICICI Bank 1. 0 balance account with just a RD of Rs. 2000 per month
2. Free multi-city cheque book
3. Free ATM Card
and loads of other benefits

There are lot more products that offer special features for women. Keep your eyes open when you ready news papers to spot such offers and make use of them.

Note: I am not endorsing any of the above mentioned products. It is just an example to show the special offers available to women from banks in India.

What should a Woman’s Investment Portfolio Consider?

When an Investment Portfolio is created for a Woman, a lot of extra considerations have to be kept in mind. Most investment plans available in the market are Men Oriented and cater majorly to the needs of the working men of the country. Hence, these products don't suit the needs of a woman.

A personal finance plan for women should include the following:

• Regular Income – even when women take a break from their careers it would be good if they can generate a regular income from their investments. Even if it is only a small or meagre amount, it still counts
• Always Keep an emergency fund – Never touch it unless and until it is a real emergency.
• Time your investments for known expenses likes children’s education or marriages etc
• Track your savings and investments regularly.

The Mantra here is:

Save and invest as much as you can. Create an Investment plan and make sure you stick to it.

Deciding on How Much you can Invest

Congratulations if you have decided to start investing. The first thing you need to do before investing is – decide on the amount of money you can spare every month to invest for your future. If you are not the sole bread winner of the family and your husband is there to take that responsibility, I would suggest you try to save atleast 40-50% of your monthly income. This would ensure that in 5 years time, you will be sitting on a comfortable cushion of Investments that amount to nearly 3 times your yearly salary.

Another thing is – Whenever you get any bonus or extra cash-flow like inheritance of property/funds, don't be an impulsive spender and spend it lavishly. Make sure that you continue to save the planned 40-50% of your income, irrespective of how it comes. In such cases, even parking it as liquid cash in your bank account is better than spending it on some luxury item.

A Sample Saving Portfolio for a Working Woman:

Before we get into the details, the following are the assumptions I am making before outlining the portfolio:

1. Our woman is just an average working woman of India
2. She is not responsible for running the family but her income supplements the income earned by her husband
3. She is a responsible mother or a prospective mother who wishes to provide good education and a great future for her kids
4. She wishes to support the retirement corpus that her husband is building to ensure a smooth and peaceful retirement for the couple

Now that we know the assumptions, let us see how the portfolio is going to look:

Investment Vehicle % of Savings To be Invested
Life Insurance Policy - 1 10%
Life Insurance Policy - 2 10%
Health Insurance 10%
Emergency Corpus - in a Savings Bank Account 15%
Cash in a Bank Fixed Deposit 25%
Mutual Funds 20%
Gold 10%

Rationale & Justification Reg. this Portfolio:

Well, if you see this portfolio, I have included many things. Let us look at the Rationale as to why I did that:

1. Life Insurance
Why? – Life Insurance is Mandatory. Every individual who is earning an income has to be insured to atleast 5 or in best cases 10 times their annual income. You are no exception. You need the life insurance.
Why 2 policies? - You might be thinking, why did I split up life insurance into two policies? The reason is – in case of some unexpected situation, you are unable to pay the premium for both policies, you can close one of them and continue to pay the premium on the other so that you will be insured but at the same time, you wouldn't be burdened by too much insurance premium.

2. Emergency Corpus - Liquid Cash in Bank Savings Account

Do I have to say Why?

3. Health Insurance

Why? – Because, you never know when you will fall sick or need medical treatment. It is always a good idea to have a health insurance policy. Make sure that you include your spouse and children as additional members of the policy to ensure that they are covered too.
If your husband is planning on taking health insurance, include your contribution and take a one good health insurance policy. It is always good to invest on oneself first.

4. Cash in Bank Fixed Deposit

Why? – Cash is King. This is the best 3 words I have learnt in my life. And they will be the best 3 words for you as well. Fixed deposits give you a decent rate of returns (usually around 8%) and would help you build up a good corpus by means of interest rate compounding

5. Mutual Funds

Why? – Mutual Funds are a boon to the normal investor who cannot invest directly in the stock market but still wishes to take advantage of the good returns that the stock market can give us. A 20% investment in MFs will help you generate good returns on your investments at the same time, help minimize losses, just in case the markets underperform.

6. Gold

Why? – It serves two purposes. Gold gives you diversification in your portfolio because gold is one of the best performing asset classes as of today. Also, you can save up a lot of gold for your daughters wedding and do it in a grand fashion.

Some Last Words:

The most important or rather most difficult task when it comes to maintaining the portfolio is – continuing to invest every month. You might be tempted to use the money planned for investment to spend on something else. Smart people will resist the urge to spend and save the money instead.

And, remember to take out some money every year to pay off your Insurance Premiums. Dont let them lapse.

Happy Saving Money Ladies!!!

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