TomorrowMakers

Women have traditionally been entrusted with running the household and saving for the proverbial rainy day. Times have changed and they are now equal stakeholders in the workplace as well as at home. However, for today’s ambitious and independent Indian woman, investing strategically is just as vital – for their own sake. After all, a solid financial foundation can help women pursue their dreams confidently and provide for their loved ones. In other words, investing wisely can make women far more resilient and resourceful.

One does not need a large amount to start investing. ‘Start small, start early’ may sound like a cliché but it is a mantra that remains relevant for all time. Putting aside a chunk of one’s earnings consistently over a period of time can add up to a substantial amount by way of accrued interest. That’s the magic of compounding at work.

Choosing the right investment avenue

A lot of investors – women included – find it difficult to navigate the complex maze of multiple types of investment options. Each may promise best-in-class returns and tax benefits! This can be a cause of what psychologists call ‘analysis paralysis.’ The result? Precious time is lost before one finally decides where to invest – or worse, they end up investing in a manner that is sub-optimal for their needs. 

The first rule of investing is to have a long-term horizon. This simply means thinking 5, 10, or 15 years into the future and coming up with a plan to invest in a diverse range of instruments according to one’s life goals. No two people are alike, so naturally it follows that no two people are likely to have the same financial goals.

When creating an investment plan, it is important to account for short-term liquidity as well as long-term capital appreciation. As the name suggests, liquid investments can be quickly converted into cash, e.g. mutual funds. On the other hand, long-term capital appreciation is ideal to combat the effects of inflation and provide long-term financial security. Examples are Public Provident Fund (PPF) or Fixed Deposits (FD). 

Of course, one should also consider other factors such as risk tolerance and the amount of money available to invest before making a decision. So, here are 9 investment options recommended for women – from long-term ones to short-term options.

1. Public Provident Fund (PPF)

PPF is backed by the government, which makes it makes it a risk-free investment option. It offers an interest rate of 7.1% currently with a maximum tenure of 15 years. A maximum of Rs 1.5 lakh can be invested per investor per year which is completely tax-deductible. In fact, interest earnings from PPF as well as the maturity amount are also exempt from tax. 

From the 3rd year to the 6th year of investing in PPF, an investor can avail of loans equalling 25% of the balance at the end of the previous year. However, the interest rate on such loans is around 2% higher than the prevailing PPF interest rate at the time. For example, if the current interest rate is 7.1%, the interest rate applicable would be 9.1%. After 5 years, investors are allowed to withdraw 50% of the invested corpus.

2. Employees’ Provident Fund (EPF)

EPF is an ideal investment option that women can use for securing post-retirement income. In fact, women employees enjoy some special privileges such as contributing at a reduced rate of 8% for the first 3 years. The government’s share of the contribution for women employees remains unchanged at 12% though. Like PPF, a maximum sum of Rs 2.5 lakh can be invested by private-sector employees and up to 5 lakh per year by government employees without tax, while interest earnings and maturity returns are also tax-exempt.

Related: Looking beyond EPF: Other methods that let you save for retirement

3. National Savings Certificate (NSC)

NSC is another good investment option for women and offers interest rates of up to 6.8%. There is no cap on the amount that can be invested per year. However, this comes with certain restrictions. For example, NSC investments have a 5-year lock-in period, which means it can only be withdrawn at maturity. Secondly, interest income is taxable.

4. Post Office Time Deposit Scheme (TDS)

Under this scheme, there are four tenure options ranging from 1 to 5 years. The minimum investment required is Rs 1000 and there is no upper limit. The maximum rate of return per year for a tenure of 5 years is 6.7%, but the calculation is done on a quarterly basis. This scheme is perfect for women investors who have a moderate to low appetite for risk. An account can be opened at any post office and can be transferred to a different location if one moves to another city or state. 

Premature withdrawal is only allowed after a minimum of 6 months from the date of account opening. However, penalties are applicable. For example, on withdrawing from a time deposit before the completion of 1 year, interest is calculated based on that of a Post Office Savings Account. In case of withdrawal after a year, a penalty equal to 1% of the interest payable otherwise is charged.

5. Post Office Monthly Income Scheme (POMIS)

As the name suggests, POMIS provides a regular income to investors such as retirees. Like its TDS counterpart, POMIS has tenures between 1 and 5 years. However, there is an upper limit imposed on the maximum amount one can invest. For individual account holders, the maximum investment has been capped at Rs 4.5 lakh while joint account holders can invest up to Rs 9 lakh. The minimum amount that can be invested is Rs 1500. Currently, POMIS investments yield 6.6% interest per annum and is paid out on a monthly basis.

6. Fixed deposits (FD)

FDs have been a tried and trusted investment option for generations, especially among risk-averse investors. They provide fixed returns that are immune from market fluctuations. However, returns from FDs are vulnerable to inflation and a fall in interest rates. When tax payable on interest is taken into consideration, the returns are even less attractive. Over the past few years, interest rates have been falling steadily and this is unlikely to change in the near future. However, for investors who prefer to invest in FDs, it is best to limit them to tenures of no more than 3 to 5 years.

Related: How well do you know about Fixed Deposits?

7. Mutual funds

Being market-linked, mutual funds give investors a much better chance of beating inflation. They are managed by professional fund managers, which is reassuring for even first-time investors. Further, there is a broad range of mutual funds to suit the aspirations of every investor. Salaried investors can opt for a Systematic Investment Plan (SIP), whereby they can invest small amounts every month. Some prioritise long-term capital appreciation (say, equity funds) while others focus on steady returns. These mutual funds are primarily debt-oriented. A key feature of debt funds is easy liquidity. Important things to consider when investing in a Mutual Fund.

8. Real estate

Real estate is gaining in popularity as an investment avenue for women. In some Indian states, women home buyers are eligible for discounts of 1%–2% on stamp duty. Secondly, banks are also wooing women borrowers with preferential interest rates on home loans with rebates of up to 0.25% in some cases. Another attractive factor in favour of real estate is that it can be leveraged to generate passive income in the form of rent.

9. Gold

In times of uncertainty, the prices of gold inevitably rises. This is why it is known as a safe haven investment. Investing in certified gold coins in a variety of sizes is thus an attractive investment option for women. If storage is a problem, gold exchange traded funds (ETFs) are an excellent alternative. It is equal in value to one gram of physical gold and provides easy liquidity. What investment options can create a regular income for women? Read this article to know more. 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.